Gold erases previous losses on weaker dollar

Gold regained positions during the early U.S. session as disappointing U.S. economic data pressured down the dollar. The precious metal surged more than $10 after June Retail Sales failed to meet expectations.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery traded at $1 284.15 per troy ounce at 14:41 GMT, up 0.51% on the day. The yellow metal hit a daily low of $1 273.35 during European trading but erased earlier losses to trade at $1 285.45 after the data was released. Prices rose to $1 297.05 on July 11, the highest level since June 24.

Gold surged on Monday, erasing prior daily losses as the dollar plunged following negative U.S. data. The U.S. Commerce Department reported that Retail Sales for June rose by 0.4%, below Mays downward revised reading of 0.5% and mismatching forecasts for a 0.7% gain. Core Retail Sales, which exclude the more volatile automobile sales, remained flat at 0.0%, below the previous months 0.3% reading and mismatched projections for a 0.4% gain. Business Inventories also disappointed, surging 0.1% but remaining below both expectations and last months downward revised reading of 0.2%. A separate report showed that only Mays New York Manufacturing Index, which tracks the manufacturing activity in the region, managed to outperform expectations and stood at 9.46, compared to Aprils 7.84 figure and above expectations for a drop to 5.00.

However, New York manufacturing activity couldnt keep the dollar from falling. The dollar index, which measures the greenbacks performance versus six major counterparts, eased from a days high of 83.62 to trade at 83.33 at 14:40 GMT, up 0.27% on the day. The strength of the dollar is mainly influenced by shifting expectations for an earlier-than-expected tapering of Feds monetary easing program. Recently, central bank seniors, including Chairman Ben Bernanke, announced that the U.S. economy still needs the accommodative monetary stimulus as while some sectors of the economy have greatly improved, the labor market is still fragile, citing the unchanged Unemployment Rate at 7.6%. Last week, Initial Jobless Claims turned out to have increased against expectations, further dampening concern over a sooner deceleration of Quantitative Easing. Meanwhile, inflation remains stable and well below target, which gives the Federal Reserve more room for easy money supply.

St. Louis Federal Reserve President James Bullard said on July 12 the U.S. central bank shouldnt taper its monetary easing program until inflation reaches its target. Meanwhile, Philadelphia Fed President Charles Plosser said the same day exactly the opposite. He stated Fed should trim its bond purchasing in September and bring it to an end by the end of the year.

This week, Ben Bernanke is due to testify to Congress on Wednesday and Thursday, which should bring further insight into the future of the central bank’s monetary stimulus.

Investors are also looking ahead into this week’s key U.S. economic data, which will provide information about the economy’s recovery pace. Consumer inflation (Consumer Price Index) and Industrial production are scheduled for release on Tuesday, while on Wednesday Building Permits and Housing starts will provide data about the U.S. construction sector. The Labor Department will release Initial Jobless Claims on Thursday. The number of people who have filed for unemployment payments is expected to have dropped by 20 000 to 340 000 after last week an unexpected surge to 360 000 supported Bernanke’s statement that the U.S. labor market is still fragile.