Gold Ends Up on China Data, But Firmer US Dollar Tempers

May 22, 2014

San Francisco (May 22)  Gold prices ended the U.S. day session moderately higher but down from the intra-day high Thursday. The precious metal was boosted by some positively perceived economic data coming out of China. However, a firmer U.S. dollar index worked to pare the better early gains in gold. June gold was last up $7.30 at $1,295.50 an ounce. Spot gold was last quoted up $3.50 at $1,296.00. July Comex silver last traded up $0.182 at $19.52 an ounce.

The preliminary HSBC China manufacturing purchasing managers index (PMI) for May came in at 49.7 versus 48.1 in April and was the best reading in five months, it was reported Thursday. This news helped to lift world stock markets and the raw commodity sector, including gold and silver, as China is the world’s largest consumer of raw commodities and is the world’s second-largest economy. Still, a PMI reading below 50.0 suggests contraction. China had recently seen a string of downbeat economic reports.

Gold prices were also firmer Thursday in part due to the Indian government relaxing rules on the importation of gold by consumers. This is likely to result in more gold purchasing from Indian consumers. India is already the world’s second-largest consumer of gold.

U.S. economic data released Thursday included the weekly jobless claims report, the Chicago Fed national activity index, the U.S. flash manufacturing PMI, leading economic indicators, the Kanas City Fed manufacturing survey, and existing home sales.  All in all there was some good data and some not-so-good data and it was a mixed bag for the market place, which showed a muted reaction to the data.

Meantime, the Markit composite purchasing managers’ index for the European Union fell to 53.9 in May from 54.0 in April. This report was in line with market expectations. The focus in the European Union at present is parliamentary elections taking place. Bond yields in the periphery EU countries (namely Spain and Italy) have risen recently, partly due to concerns about voters putting into office extremists who are anti-EU and may not want to pay off their own nation’s sovereign debt.

The market place quickly digested the minutes from the latest U.S. FOMC meeting, which were released Wednesday afternoon. Those minutes showed Federal Reserve officials discussing how to go about raising interest rates and that caused a modest reaction by some markets, but it was short-lived. In the end most traders and investors reckoned there was not much new in the FOMC minutes and that U.S. interest rates are likely to remain low for quite some time to come.

The Russia-Ukraine territorial crisis is on a low simmer at present but that could change this coming weekend. The Ukraine holds a presidential election on Sunday, which could produce new tension in the region. I would not be surprised to see that within the next week or so this situation flares up again to become a front-burner issue in the market place. Such would likely be a bullish development for U.S. Treasuries, the U.S. dollar and gold.

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