Gold futures were down around one percent in early-morning US trading, with a resurgent dollar and falling crude prices weighing on the metal.
Gold for July delivery on the Comex division of the New York Mercantile Exchange was last $12.80 lower at $1,214.80 per ounce, retreating from yesterday’s three-month high of $1,230. Trade has ranged from $1,212.20 to $1,225.50.
The dollar has risen more than 2.5 percent against the euro in the last two sessions to 1.1146 from three-month lows of 1.1466 despite speculation that the US slowdown in the first quarter may well stretch into the second and ultimately stay the Fed’s hand when it comes to the normalisation of US monetary policy.
“The firm US dollar took its toll during the later course of the day, with the result that gold shed almost all of its gains again,” Commerzbank said.
The members of the Fed’s policy board are locked in what has become an increasingly public debate on when will be the right time to raise interest rates, which have been near zero since December 2008.
At its last meeting, the Fed policy board removed all calendar references in its forward guidance and said that recent economic weakness might be “transitory” in nature. This means that bank is now entirely data dependent and a rate increase could happen at any future meeting.
The minutes of the most recent FOMC meeting will be released on Wednesday.
In US data, April building permits were at 1.14 million, ahead of the forecast 1.06 million. April housing starts rose to 1.135 million from 0.93 million in March, while estimates were pegged for 1.02 million.
“US housing data was much stronger than expected in April, bolstering the dollar – this is one of the sectors that we believe will figure highly in the FOMC’s decision on when to raise rates,” FastMarkets analyst Tom Moore said. “Renewed dollar strength will return downside pressure to metal prices, capping the gains made while it corrected recently.”
But the recent run-up of the dollar will be brief while weakness in the US economy continues, INTL FCStone analyst Ed Meir predicted.
“Should we get another burst of buying in the dollar, we could see the pressure mount on gold, but we suspect that rallies in the greenback will likely be short-lived given the likelihood that the US economy will continue to show signs of ongoing weakness,” he said.
In the eurozone, Germany’s DAX and France’s CAC-40 were both up 1.9 percent.
In other precious metals, Comex silver for july delivery was down more than three cents at $17.425 per ounce. Trade has ranged from $17.315 to $17.735. Platinum futures for July delivery on the Nymex declined $18.70 to $1,159.80, while the most-actively traded palladium contract was at $784.70, down $8.30.
Light sweet crude (WTI) oil futures on the Nymex were down $1.14 or 1.9 percent at $59.10 per barrel.
(Additional reporting by Ian Walker, editing by Mark Shaw)
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