Gold Prices Hit Five Year Low on Upbeat Economic Reports

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Gold Prices Hit Five Year Low on Upbeat Economic Reports

Gold futures plummeted to a five year low on Friday after better than expected economic data boosted expectations of a hike in the country’s interest rates by the end of the year.

Gold for immediate delivery slipped 1.1% to close at $1,130.70 a troy ounce. Based on the most active contracts, this is the lowest the contract has been since April 2010.

US gold for August delivery, the US most active contract, ended down 1% at $1,131.90 a troy ounce on the Comex Division of the New York Mercantile Exchange.

“It’s an asset that does better when everything goes to hell and doesn’t do so great when the U.S. economy is perking up,” Bart Melek, senior commodities strategist with TD Securities in Toronto, told Reuters.

On Friday the government released data showing that June housing starts had rebound by more than 9.8% and the country’s inflation rate increased showing that the economy was strengthening.

The Federal Reserve Chairwoman Janet Yellen told the US congress that the Fed was on track to raise the interest rates later this year if the US economy grows as expected.

A rate hike is bearish for the demand of gold as it gives off no interest, costs money to hold and only relies on price changes for profitability.

Analysts expect the metal to continue losing its allure as stocks in China continue their recovery and the Greek Crisis is resolved.

“It’s all about interest rates and when they’re going to be raised,” George Gero, a senior vice president with RBC, told Nasdaq.

“People are expecting the Fed to move, and they’re expecting the Fed to move sooner rather than later.”

The bullish economic reports also increased the value of the dollar against a basket of foreign currencies. A stronger dollar is bearish for the demand of commodities like gold which are denominated in dollars as it makes them more expensive to holders of foreign currencies.

To contact the reporter of the story: Samuel Rae at samuel@forexminute.com

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.