Gold Edges Up on Weak U.S. Manufacturing Data

on Jul 4, 2012

After gold prices first fell on Monday morning on profit-taking figures, the yellow metal advanced following the publishing of a report from the Institute for Supply Management showing an unexpected decline in U.S. manufacturing activity. The U.S. manufacturing sector shrank in June for the first time in nearly three years as new orders declined. The Institute for Supply Management’s report followed a string of data from Europe and Asia that suggested the Eurozone debt crisis was reverberating throughout the global economy, increasing the need of further monetary easing. With the global economy losing all the momentum of the first two quarters of 2012, quantitative easing from central banks around the world as well as an increase in gold price is imminent, analysts said.

!m[](/uploads/story/168/thumbs/pic1_inline.png)Gold thrives on abundant money supply and low interest rates, which increases the inflation outlook and benefits bullion, seen as a hedge against rising inflation and currency devaluation. Accordingly, gold investors are closely watching U.S. data in the second quarter for clues as to the likelihood of a fresh round of monetary easing, which would potentially hurt the dollar and support gold. Investors are also eyeing the outcome of the European Central Bank’s policy meeting which is going to be held on Thursday

(July 5), amid growing expectations for a rate cut to help bolster growth in the European Union.
Gold prices have been sensitive to the increasingly poor economic data raising expectations of monetary easing. In consequence, on Monday (July 2) spot gold rose 0.5 per cent to $1,605.36. U.S. gold futures for August delivery settled down $6.50 at $1,597.70 an ounce, having closed earlier and higher than bullion on Friday. Trading volume was about half of its 30-day average, preliminary Reuters data showed.

And while spot gold inched up, physical demand for gold lagged. Demand for gold from the world’s largest bullion consumer, India, remained low as a recent depreciation in the rupee raised prices for local buyers. Furthermore, a poor monsoon season in India so far has also badly impacted the demand for gold, with farmers accounting for more than 50 per cent of total demand for the yellow metal. Meanwhile the world’s largest gold-backed exchange-traded fund, New York’s SPDR Gold Trust (GLD), reported a 2.11 tonne outflow on Friday, extending its first quarterly decline in holdings in a year.

Among other precious metals, silver followed gold higher. The white metal edged up 0.2 per cent to $27.54 an ounce. Spot platinum continued its three-day positive run gaining 0.4 per cent at $1,448.10 an ounce, while spot palladium fell 1.1 per cent at $571.55 an ounce.
The gold/platinum ratio, which measures the number of platinum ounces needed to buy an ounce of gold, hit its highest for more than four months on Monday, while gold’s premium over platinum rose above $190 for the first time since early January.