Gold trading outlook: futures decline on US economy prospects

Gold suffered losses as the Bureau of Labor Statistics revealed consumer inflation in the US gained on last months performance, exceeding forecasts. All signs point towards a healthy economic recovery and growth, strengthening the greenback and reducing demand for the precious metal.

Gold futures for delivery in June traded at $1 294.20 per troy ounce at 13:22 GMT, down 2.51% on the day. Daily highs and lows were at $1 328.40 and $1 284.40 an ounce. Previously, gold gained 0.64% on Monday, closing at $1 327.50 per ounce.

The report put annual CPI growth for the month of March at the comforting 1.5%, beating experts forecast of 1.4%, while the monthly CPI growth was at a 0.2% rate, also outperforming the 0.1% forecast. Core CPI reached 1.7% growth on an annual basis and 0.2% on a monthly basis.

Rising shelter costs accounted for almost two-thirds of the Core CPI growth. Elsewhere, while food prices were brought up 0.4% by a drought in the West, a 1.7% fall in gasoline prices, alongside a decrease of 0.1% in energy costs limited inflation growth. Despite the jump in inflation, it remained below Feds official long-term target of 2.0%, ensuring interest rates will remain at rock bottom for some time.

Gold has been under increasing pressure from the speedy recovery of the US economy. Tuesdays report of retail sales, which rose by 1.1%, exceeded the forecast of 0.8%, pushing down the precious metal.

Meanwhile, the US Dollar Index has seen growth for the fourth consecutive day, reaching a week high at 79.985. The June contract stood at 79.925 at 13:25 GMT, up 0.15% on the day, marking a 0.5% rise on weekly basis so far. Strengthening of the greenback makes raw materials priced in it more expensive for foreign currency holders and limits their appeal as an alternative investment.

Sun Yonggang, a macroeconomic strategist at Everbright Futures Co., said for Bloomberg: “Gold benefited from the escalation in tension between Russia and the Ukraine, but upbeat U.S. economic data put a damper on the safe-haven rally.”

Market players are now awaiting the release of other key economic data from the US to gauge the strength of the economy, including housing data, initial jobless claims and Philadelphia region manufacturing gauge.

On Wednesday, data is expected to show a rise in housing starts in March and a minor decline in the issuance of building permits. A separate report will likely show a second straight monthly expansion in industrial production, by 0.5%, after activity in the sector contracted by 0.3% in January.

Due on Thursday are weekly initial unemployment claims and the Philadelphia Fed Manufacturing Index, which is expected to have marked a second straight month of expansion.

Resilient tensions in Ukraine

The precious metal soared in the last two weeks as escalating tension between Russia and Ukraine reduced investors’ risk appetite, forcing them to seek safe haven. Gold lost some ground ahead of a diplomatic meeting in Geneva, due on Thursday, where Western powers, Ukraine and Russia will hold negotiations that would hopefully achieve progress toward a peaceful resolution to the crisis in Ukraine.

However, simmering tensions kept the market underpinned. The European Union and the United States continued to consider further sanctions on Russia after pro-Russian separatists chose to ignore Kiev’s Monday morning deadline to leave government buildings in eastern Ukraine, which they had previously seized.

The European Union agreed on Monday to expand the list of people sanctioned due to their alleged participation in the violation of Ukraine’s sovereign integrity by 4 to 55. Further penalties may be considered as well.

US President Barack Obama held a phone call with his Russian counterpart Vladimir Putin saying Moscow will face additional sanctions, if it continues with its course, and that Russia’s actions were not helping to find a diplomatic resolution to the crisis.

Holdings in the SPDR Gold Trust, the biggest bullion-backed ETP, rose by 1.8 tons on Monday to 806.22 tons, the first inflow the fund has seen since March 24th. It lost 41% of its assets in 2013 that wiped almost $42 billion in value. A total of 553 tons was withdrawn last year.