Gold Firms on Profit-taking, but Still Vulnerable to Rising U.S. Dollar

August Comex Gold futures fell to a seven-week low during the Asian session, driven by expectations of an early interest rate hike by the U.S. Federal Reserve. The selling pressure started last week with the release of the Fed minutes and extended on Tuesday after the release of stronger-than-expected U.S. New Home Sales data and a huge surge in U.S. equity indices.

The U.S. futures contract was trading at $1230.90, down, $1.30 or -0.11%. Spot gold was up 0.1 percent at $1227.90 per ounce. Earlier in the session, the precious metal fell to $1223.00, its lowest since April 7.

A stronger dollar also helped weaken gold yesterday, the Greenback attracted buyers after robust U.S. housing data supported the case for the Fed to raise rates in June rather than July or September. Official data showed that new home sales hit their highest level in eight years.

Bullish gold traders cite the fact that gold is still out-performing stocks in 2016 despite the stronger dollar and the threat of multiple interest rate hikes. Investors have been aggressively buying the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, all year. On Tuesday, however, holdings in the fund declined for the first time in a month, dropping 0.44 percent to 868.66 tonnes.

Spot silver rose 0.3 percent, to $16.25 an ounce, bouncing back from an earlier break to $16.14. July Comex Silver futures also posted an intraday reversal, finishing at $16.315, up $0.061 or 0.38%.

June Palladium closed lower at $534.85, finishing down $3.10 or -0.58%. Spot palladium was also down 0.5 percent, to $529.50 an ounce. On Tuesday, the spot market hit a twelve-week low of $528.97.

Investor appetite for palladium-backed exchange-traded funds is failing to pick-up after a dismal 2015, pointing to another difficult year for the metal despite the prospect of a deepening supply deficit, according to Reuters. Experts are predicting the market shortfall for palladium will grow this year as mine output abates and demand from carmakers picks up.

Spot Platinum was trading $1000.35 per ounce after touching a five-week trough of $992.00. The July futures contract finished at $1004.10, down $0.10 or -0.01%.

Recently, Reuters reported that demand for platinum was up in North America after a sharp drop in prices boosted jewelers’ margins, driving up consumption of the white metal by more than a third over the last six years.

Reuters also said that Chinese demand was down despite lower global prices, leaving the world demand for the metal exposed to an even sharper decline. A close to double-digit drop in Chinese platinum jewelry demand is expected this year.