Gold price falls from 3-week highs, as strong China data eases growth concerns
New York (Apr 13) Gold fell sharply on Wednesday amid a stronger dollar, as stellar trade data in China assuaged longstanding concerns on slowing growth in the world's second-largest economy, dampening the precious metal's appeal as a safe-haven asset.
On the Comex division of the New York Mercantile Exchange, gold for June delivery traded in a broad range between $1,241.50 and $1,258.60 an ounce before settling at $1,248.10, down $12.80 or 1.02% on the session. With the considerable losses, gold fell precipitously from 3-week highs reached in the previous session. The precious metal has resumed its push toward 13-month highs in recent sessions, amid dovish indications from the Federal Reserve that it will delay the timing of its next interest rate hike. Despite Wednesday's sell-off, gold has still surged more than 17% in 2016 and is on pace for one of its strongest first halves in decades.
Gold likely gained support at $1,209.20, the low from April 1 and was met with resistance at $1,280.70, the high from Mar. 11.
Gold moved lower in overnight, Asian trading after the Chinese government reported on Wednesday that exports surged by 11.5% in March on an annual basis, defying expectations for slight gains of 2.5%. The upbeat data bolstered investor confidence, one month after Chinese exports plummeted more than 25% in dollar terms. In renminbi terms, Chinese exports soared nearly 19% on the month while imports fell mildly in March.
The optimistic reading bolstered struggling metal stocks in China and triggered a short squeeze among equities in Hong Kong. As a result, the SEHK in Hong Kong closed 3% higher, while the Shanghai Composite Index ended Wednesday's session up more than 1.4%. The rally also spilled over into euro zone markets, as investors departed from their positions in safe-havens such as gold for riskier assets. In Europe, the Stoxx 600 index soared more than 2.5% to 343.06, extending its longest winning streak in more than a month, while the FTSE 100 index in the U.K. rose nearly 2% to 6,362.89, its highest closing level of 2016.
The strong Chinese trade data also provided a boost to the dollar, which jumped more than 0.75% on Wednesday to an intraday high of 94.82. The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, was on pace in afternoon trading for one of its strongest single sessions in six weeks. On Monday, the index dipped below 94 to hit an eight-month low.
Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.
Gold could remain in a holding pattern over the next two weeks before the Federal Open Market Committee (FOMC) issues its next interest rate decision on April 27. On Tuesday, Federal Reserve Bank of Dallas president Rob Kaplan said he thinks the FOMC could raise short-term interest rates in June if the economy demonstrates continued improvement, while San Francisco Fed president John Williams said the Fed should approve "two to three rate hikes," before the end of the year if the current economic outlook remains unchanged. On Thursday, Fed governor Jerome Powell and Atlanta Fed president Dennis Lockhart are scheduled to make public appearances, while Chicago Fed president Charles Evans is scheduled to deliver a speech at a JP Morgan Investor Seminar in Washington on Friday.
The FOMC has held its benchmark Federal Funds Rate at its current level between 0.25 and 0.50% at each of its first two meetings in 2016. Any rate hikes are viewed as bearish for gold, which struggles to compete with high-yield bearing assets in rising rate environments.
Silver for May delivery gained 0.088 or 0.54% to $16.310 an ounce.