Gold price surges on worst US trade balance in six years

Otmane El Rhazi from The Bullion Desk.

The gold price continued its bull run on Tuesday afternoon, temporarily hitting the key $1,200 mark following the worst US trade balance figure in six years.

Spot gold was last at $1,196.50/1,197.30 per ounce, up $19.10 on Monday’s close and having hit intraday highs of $1,200, earlier in the session.

Other metals also performed strongly – silver was last up 48 cents at $16.57/16.62 per ounce, just short of one-month highs. Platinum climbed $26 to $1,150/1,155 and palladium hit its highest in two months at $798.50, though it has since dropped back to $794/799, up $25.

The US trade deficit of $51.4 billion was much larger than the expected $41.2 billion and the worst reading since October 2008, which has been attributed to a surge in imports through West Coast ports – operations there have normalised activity following months of labour disputes.

“Gold gained upside today following the large drop in the US March trade balance, which signalled a large rise in imports on top of an already weakened export market,” FastMarkets analyst Tom Moore said. 

“This highlights the dollar’s strong headwind effect on US manufacturing, eroding the country’s global competetiveness. After the official PMI fell to a three-month low in April, signalling a reduced rate of expansion, speculation for a renewed downturn in the sector has increased,” he added.

Gold had initially benefitted from dip-buying following heavy liquidation towards the end of last week, though the move picked up steam following the US data miss. Still, initial moves were capped by a dollar that has been clawing back some of the losses sustained last week – the US currency was last at 1.1183 against the euro.

In other data, the ISM non-manufacturing PMI at 57.8 came in better than expected although the IBD/TIPP economic optimism figure at 49.7 fell short of forecasts.

In earlier data, Spain’s unemployment change at -118,900 was better than expected but the EU PPI underperformed at 0.2 percent.

Many participants will remain on the sidelines of the market ahead of Friday’s blockbuster US non-farm payrolls data, which is forecast at 231,000 in in April after an unusually weak reading of 126,000 in March.

The data may provide clues on when the Federal Reserve will begin to normalise monetary policy, particularly as the Fed recently shifted its stance almost exclusively to data dependency, citing in particular jobs and inflation data.

 

(Editing by Mark Shaw)

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