Dollar Rebounds on Strong US Data While Gold Retreats

At the start of this week, the price of gold declined as the dollar rebounded on strong U.S. data that many believe will prompt the Fed to advance rate hikes. That data includes spot gold declining by 1.7% to reach $1,767.86 per ounce, which is quite a drop from its highest price of $1,809.91 per ounce. U.S. gold futures also dipped by more than 1.5% to reach $1,780.50 per ounce. Gold wasn’t the only metal affected either as silver also hit $22.19, after dropping by 4%.

The latest data from the Institute for Supply Management (ISM) shows that industry activity in the U.S. services sector picked up last month, moving from 54.4 to 56.5. Institute chair Anthony Nieves stated that the holiday season and a new fiscal period contributed to stronger business activity and a rebound in employment. This comes two months after the services sector experienced contractions in the previous months.

Thirteen industries also reported growth, including construction, public administration, utilities, rental and leasing, retail trade, mining, transportation and warehousing, real estate, forestry, health care and social assistance, and agriculture, which suggests that most of the economy is resilient. This provides additional evidence of underlying momentum in the U.S. economy, as the country prepares for a recession in 2023.

Blue Line Futures’ chief market strategist Phillip Streible stated that the latest ISM data, which exceeded the expectations of many, caused a rally in the dollar index. This, in turn, prompted traders to cash out on silver and gold on expectations that the Federal Reserve would become more hawkish.

The dollar’s performance also reduced gold’s attractiveness to bullion traders who held other currencies. This comes after the precious metal also gave up gains from a previous rally after news broke of a top consumer of bullion in China easing COVID-19 restrictions.

The ISM report also shows that the New Orders Index stood at 56%, which is 0.5 percentage points lower than its October reading while the Business Activity Index recorded a significant increase of 9 percentage points to reach 64.7%. On the other hand, the Prices Index also dipped by less than a percentage point, hitting 70%.

Giovanni Staunovo, an analyst at UBS, stated that the short-term path of gold would be impacted strongly by the soon-to-be-released CPI data, noting that he expected a further hike in rates weighing on gold in the coming weeks. CPI data from November is scheduled for release on Dec. 13, 2022.

The stocks of extraction companies such as Eloro Resources Ltd. (TSX.V: ELO) (OTCQX: ELRRF) are likely to be sensitive to the CPI data published last week.

NOTE TO INVESTORS: The latest news and updates relating to Eloro Resources Ltd. (TSX.V: ELO) (OTCQX: ELRRF) are available in the company’s newsroom at http://ibn.fm/ELRRF

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