Wall Street Sell-Off Supports Gold, Prices Held Below Resistance
New York (May 11) A firm dollar and higher yields put downward pressure on gold on Wednesday, but prices edged higher in US trading on Thursday as USD/JPY lost traction and US equities dipped lower.
A solid dollar tone in US trading with USD/JPY edging to 8-week highs around 114.40 triggered downward pressure on gold, especially as global risk appetite held firm. Prices dipped to lows just below $1,218, but held above the 8-week low recorded on Tuesday.
There was further relatively hawkish rhetoric from Boston Fed President Rosengren who stated that a further three rate increases was realistic for 2017, although he is not an FOMC voter this year.
Gold edged higher in Asian trading on Thursday as the US currency was unable to extend gains and there were further slight gains to just below $1,225 with prices held below the 100-day moving average.
US initial jobless claims declined to 236,000 in the latest week from 238,000 previously and continuing claims declined to a 28-year low which reinforced confidence in the labour market.
The latest producer prices data was also stronger than expected with a headline increase of 0.5% for April with a core gain of 0.4% compared with expectations of an unchanged reading.
The strong labour-market data reinforced expectations that the Federal Reserve would move to raise interest rates at the June FOMC meeting.
The data also underpinned the dollar with USD/JPY attempting to regain the 114.00 level while US Treasuries ticked lower as the 10-year yield approached 2.42%. Overall risk appetite also held firm which curbed demand for defensive assets.
The combination of a firm dollar and higher yields triggered some renewed selling pressure on gold with a retreat towards $1,220, although ranges were narrow and prices moved higher in US trading as equity markets declined sharply.
Developments in bond yields are likely to remain a crucial element in the short term with gold coming under fresh selling pressure if yields increase further.
Source:EconomicCalendar
