Reuters
Gold settled back below $1,300 an ounce on Friday, as upbeat monthly U.S. employment data buoyed the dollar and suggested that the Federal Reserve remains on track to raise interest rates later this month and later this year.
Relative calm also returned to Italian politics, a move also seen helping to pave the way for U.S. action on rates.
August gold lost $5.40, or 0.4%, to settle at $1,299.30 an ounce, with the contract posting its lowest finish since May 23 and logging a loss of about 0.7% for the week. It had finished roughly 1.6% lower for the month of May.
Based on the most-active futures contracts, gold was down about 1.1% last month. 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.
Data Friday showed that the U.S. created 223,000 new jobs in May, pushing unemployment down to an 18-year low of 3.8%.
Separately, the Institute for Supply Management’s manufacturing index rose to 58.7%, up 1.4 percentage points from April and a two-month high.
“Great job numbers, lower unemployment rate, increased labor participation rate and ISM [were] all putting more pressure on gold,” but the decline tapered off by late morning Friday, said Jeff Wright, executive vice president at GoldMining Inc.
In a note Friday, analysts at TD Securities said the jobs report “should support Fed officials’ plans to hike again in June — despite a pick up in uncertainty due to trade protectionism and European politics — and keep them on a gradual hiking pace.”
Rising real interest rates impact the opportunity costs of holding gold because the metal provides no yield, and entices investors to rotate into riskier assets like stocks. Higher rates may also boost the value of the dollar which usually moves in the opposite direction of the gold price.
The benchmark ICE U.S. Dollar Index tacked on 0.2% at 94.16. The index was so far trading nearly flat for the week.
“I believe we are setting ourselves up for a relief rally in June”—a sell move in the U.S. dollar which will be supportive for gold, Wright said, adding that he expects gold to recover over next week or so to the $1,300 level and “possibly build from there.”
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 by the settlement.
Canada has promised to slap its own tariffs on a wide range of U.S. goods effective July 1. Mexico is targeting steel and various food offerings in its own retaliation. The EU has been planning its response for some time, with tariffs expected on steel and Harley-Davidson motorcycles among other goods due to go into effect June 20.
Gold slipped as U.S. stocks echoed 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 on the benchmark 10-year U.S. Treasury note moved 6 basis points higher to 2.889%, 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.
In other metals trading, July silver fell 0.1% to $16.441 an ounce, with the contract ending about 0.6% lower for the week. July copper ended at $3.099 a pound, up 1.1% for the day and gaining 0.7% for the week. July platinum slipped 0.4% to $906.70 an ounce, for a weekly gain of 0.6%, while September palladium added 1.5% to $996.60 an ounce, for a rise of around 2% on the week.
Among exchange-traded funds, the SPDR Gold Shares lost 0.3%, trading down 0.4% for the week. The iShares Silver Trust added less than 0.1% for the session so far, and the VanEck Vectors Gold Miners ETF up 0.1%.