GOLD PRICES fell together with the Euro single currency on Wednesday, dropping to new 4-month lows for Dollar investors after US data showed a rebound in industrial output and Federal Reserve chair Janet Yellen again signalled her plan to raise interest rates from 0% before year’s end.
US industrial production rose at the fastest monthly pace of 2015 so far in June, new data from Fed showed, with capacity utilization rising to 78.4% from May’s 19-month low.
“Valuation measures in most asset markets remain notable,” the central bank said separately in its quarterly Monetary Policy Report, and “credit markets have been reflecting some signs of reach-for-yield behavior.”
“The US economy,” said chair Yellen – presenting the Report in her semi-annual testimony to Congress, and again saying “economic conditions likely…make it appropriate at some point this year to raise the federal funds rate target” – “might snap back more quickly as the…boost to consumer spending from low oil prices shows through more definitively.”
New data Tuesday had shown US retail sales falling unexpectedly in June, despite overall import prices dropping 10% from a year earlier.
Despite crude oil falling near January’s 6-year lows, retail gasoline prices in California this week hit 12-month highs after refinery output was hit by strikes, maintenance and repair work.
The Dollar pushed the Euro down to 1-week lows of $1.0940, while 10-year US Treasury yields spiked to a 2-day high of 2.42%.
Dollar gold prices fell almost $10 per ounce to $1146 – the weakest level since mid-March, and some $15 above last November’s 4.5-year lows.
Gold priced in Euros, in contrast, traded around the €1050 level now holding since the current phase of the Greek debt crisis began in early June.
“Greece’s debt,” says a leaked memo from the International Monetary Fund made public overnight, “can now only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far.”
Eurozone proposals for a third Greek bail-out being debated today by the parliament in Athens – and supported by the formerly anti-austerity Syriza government – actually need “a very dramatic extension” of debt maturities, the IMF memo advises, “with grace periods of, say, 30 years on the entire stock of European debt, including new assistance.”
The “breakout today [in gold prices was] likely to the downside,” says a trading note from Chinese-owned ICBC Standard Bank’s London team, adding that the price had been “impressively stable” amid open interest in US Comex futures and options “rising dramatically as [bearish] shorts pile in.”
“Gold is out of love,” agrees another London bullion bank in a note, “as investors continue to short the precious metal.
“The macro news remains unfriendly to the yellow metal [as] the market continues to price in a Fed rate hike for September 2015.”
