Gold Prices Settle Lower

Gold prices settled lower on Thursday after the U.S. dollar firmed up in the wake of better than expected economic indicators; besides investors adopted a wait and watch policy ahead of the nonfarm payrolls report and presidential elections put lid on gains.

U.S. gold futures for December delivery settled down 0.2 percent, or $3.60, at $1,715.50 while Spot gold was trading lower 0.3 percent at $1,713.89 an ounce.

The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.47% lower at $166.08.

Bullion, which touched its yearly high of $1,795.69 an ounce on October 5 after the Federal Reserve launched its third round of quantitative easing, retreated gradually towards $1,700 mark since then as investors struggled to find any clear directions.

While falling quarterly profits and series of lackluster economic indicators from across the world (in October) put a question mark on gold’s inflation hedge appeal at that moment, looming threat of spending cuts from Washington and uncertainty with regard to presidential elections kept investors in the sidelines for now.

On Thursday, gold prices felt further pressure from stronger dollar, which gained sharply against a basket of major traded currencies following the release of unexpectedly strong U.S. economic indicators.

Gold prices and U.S. dollar, in general, tends to move in opposite direction as most commodities which are internationally priced in U.S. dollars become expensive to buy for those dealers who deal in currencies other than the greenback, hurting the demand for commodities.

The ICE dollar index, a gauge on U.S. unit’s performance against a basket of six major traded currencies, climbed to 80.084 on Thursday from 79.903 on Wednesday in North American trade.

Also, improving U.S. economic data resulted in across-the-board rally in the equity markets, prompting investors to close bullish bets on gold in favor of better performing equity markets.

However, with China’s economy eventually showing marked improvement, there is a strong chance that gold prices could rebound in the mid to long term. On Thursday, an official manufacturing PMI reading for October stood at 50.2, up from 49.8 in September. Improving manufacturing activities clearly points towards improvement in the overall economy which in turn could fuel the demand for the metal from one of the world’s biggest buyer-China. In addition, the $60 billion injected by the government of China in order to boost infrastructure spending could burnish metal’s allure as inflation-hedge in the coming months.

In its research note, analyst at Commerzbank wrote, “There are thus increasing signs of the Chinese economy gathering pace again — indeed, we believe it may already have bottomed out.”

Commenting over improving economic data and its impact on gold prices, HSBC stategists’ said in a research note, “More robust economic growth again, supported among other things by numerous infrastructure projects, is likely to spark solid demand for commodities in general and for metals in particular, Gold prices are likely to move higher in the short term and may be helped by a pickup in Indian festive buying ahead of Diwali and the Indian wedding season.”

Spotlight on Non-Farm Payrolls Report and The Presidential Elections

Even though market participants are keenly waiting for the outcome of U.S. presidential elections, the Labor Department’s, non-farm payrolls data for October, scheduled to be released on Friday will also keep bullion investors interested as employment numbers could well provide a hint on for how long will the Fed continue with its bond buying program.

“The ongoing  program ‘Operation Twist’ (exchange of bonds with short maturities to ones with long maturities) will expire by the end of the year, thus forcing the Fed to decide whether to pump further liquidity into the economy or not at its December meeting, that means disappointing data is likely to cause speculation about an increase of QE3 towards year-end, thus putting pressure on (the dollar), while surprisingly positive results reduce this likelihood,” said Commerzbank.

Moving onto some other precious metal markets, Silver inched up 0.2 percent to close at $32.26 an ounce. Spot platinum settled higher 0.2 percent at $1,563.75 an ounce, and palladium climbed 1.5 percent to close at $609.22 an ounce.

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Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.