Gold price slips as relative calm returns to Europe markets

June 1, 2018

London (June 1)  Gold prices eased a touch early Friday, though drift near the closely watched $1,300 line, after May’s drop for the metal marked a second straight monthly decline.

Investor attention turns to the closely watched monthly payrolls report due for release at 8:30 a.m. Eastern, after a spate of recent data has done little to sway expectations that the Federal Reserve will raise interest rates later this month. Relative calm returned to Italian politics, a move also seen helping to pave the way for U.S. action on rates.

August gold GCQ8, -0.44% lost $1.60, or 0.1%, to $1,303.10 an ounce. The contract ended about 1.6% lower for May. Based on the most-active futures contracts, gold was down about 1.1% in May. The metal hit a fresh 2018 low in mid-May and cracked the downside of a $1,300-to-$1,350 range that had confined gold for much of this year.

Thursday’s trading was volatile. After the White House announced that it will impose tariffs on steel and aluminum from Canada, Mexico and the European Union starting Friday, prices for gold moved decidedly higher, before falling back again by the settlement.

Now, Canada has promised to slap its own tariffs on a wide range of U.S. goods, including steel, aluminum, food and agricultural products, to come in July 1. Mexico is targeting steel and various food offerings in its own retaliation, for a total value comparable to the U.S. duties. The EU has been planning its response for some time, with tariffs expected on steel and Harley-Davidson motorcycles among other goods worth $7.5 billion, due to go into effect June 20.

And see: U.S. tariffs only add to the obstacles for Nafta negotiations

Gold slipped as U.S. stock futures were mirroring sharp gains in Europe, where relief that Italy now has an agreed government boosted risk-on markets. Populist parties the League and the 5 Star Movement struck a deal to form a coalition government, ending months of political deadlock and averting a summer ballot that was seen as a de facto referendum risking a euro crisis.

“The yield spread [a measure of perceived risk] between 10-year Italian and German government bonds, which has had such a bearing on the gold price recently, has decreased to 225 basis points,” said Carsten Fristch, commodities analyst at Commerzbank, in a note. “It was above 300 basis points for a time at the start of the week. Market participants clearly feel that a government is preferable to new elections that would presumably see the populists emerge even stronger.”

Gold slipped even as the ICE U.S. Dollar Index DXY, +0.10%  eased 0.1% at 93.92. Higher volume takes place in the dollar-priced gold market, leaving the commodity sensitive to the greenback’s moves. The index traded roughly 2.4% higher for last month.

The yield on the benchmark 10-year U.S. Treasury note TMUBMUSD10Y, +1.56%  moved 4.9 basis points higher to 2.878%, rebounding after logging a 11.2 basis points decline for the month of May. The large monthly decline in U.S. yields came after Italian political turmoil earlier this week sparked speculation the Federal Reserve would hold off on raising rates until the risks receded. Gold also tends to move inversely to Treasury yields.

Economic data doesn’t stop with the jobs report. At 9:45 a.m. Eastern Time, an update on manufacturing is expected when Markit releases its purchasing managers’ index for May. That’s followed by the ISM manufacturing index for the same month and a reading on construction spending in April, both scheduled for 10 a.m. Eastern. Monthly figures on auto sales are expected to trickle out through the day.

In other metals trading, July silver SIN8, -0.32% fell 0.1% to $16.435 an ounce, with the contract up nearly 0.5% for May. July copper HGN8, +0.03%  traded at $3.071 a pound, up 0.2%. July platinum PLN8, -0.38%  slipped 0.1% to $909.60 an ounce. September palladium PAU8, -0.19% fell 0.2% to $979.40 an ounce.

Among exchange-traded funds, the SPDR Gold Shares GLD, -0.22%  lost 0.1%, trading down 1.1% for July, while the iShares Silver Trust SLV, -0.58%  shed 0.3%,after a monthly gain of 0.7%. The VanEck Vectors Gold Miners ETF GDX, -0.45%  was down 0.1%,up 0.2% for May.


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