Gold took a major tumble on Monday as traders seemed to be less stressed, waiting for Janet Yellen's testimony this week. Gold fell to trade below 1307.00 on Monday and recovered a bit in Tuesday’s Asian session as trader bought up the cheap commodity.
The release last week of the Minutes from the June FOMC meeting suggested the Fed are comfortable to leave rates lower for a “considerable time” after QE tapering ends in October. Since the June meeting we have seen a strong payrolls number, with US unemployment dropping to 6.1%, encouraging some market participants to suggest the Fed may consider adjusting policy settings going forward.
If the Fed were to adjust policy settings on the back of improving economic data we could see a strengthening of the US dollar Index. A clearer picture will emerge when Fed Chair Janet Yellen delivers her semi-annual testimony to the Senate Banking Committee later today. Silver followed gold to fall below the 21 price level and is holding at 20.95 while platinum fell below the 1500 price tumbling to 1498.50
Yellen has recently been prepared to look through signs of increasing inflation pressures, a view recently endorsed by Fed member Kocherlakota. There are, however, a number of Fed members expressing concerns that inflation is nearing the Fed’s 2% inflation target. Concerns that continued accommodation may see the Fed lose control of inflation, and risk destabilizing financial markets if they are forced to hike rates faster and higher than they wanted to be expressed by Fed member Plosser on Friday.
Gold slid 2.4 percent, its biggest one-day drop since early December, as fading fears over Portugal’s banking sector and a gain in US equities prompted investors to take profits after bullion’s rally to 3-1/2 month highs last week. Gold rallied to near $1,350 an ounce last Thursday after questions about the health of Portugal’s top-listed bank sparked worry that a new euro zone banking crisis might be in the offing.
Comex gold futures for August delivery settled down $30.70 an ounce at $1,306.70. The pace of trading was frantic, with volume about 60 percent above its 30-day average, preliminary Reuter’s data showed. Domestic prices in top buyer China fell to a discount to the global benchmark on Tuesday, from being on par in the previous session, in a sign of weak physical buying. Demand in other parts of Asia was also subdued, dealers said.
In other metals, Copper eased against a stronger dollar as traders booked profits. Copper is trading at 3.232 down by 21 points in the Asian session. London Metal Exchange copper prices edged down during the Asian morning session on Tuesday July 15 amid weak eurozone industrial data. Shanghai copper fell to its lowest in nearly two weeks on Tuesday and dragged down London copper, with traders who follow chart-based strategies selling as a month-long rally appeared to sputter.
London copper had surged 9 percent from June lows but has failed to build on the gains, despite generally improving economic sentiment. “We’ve had a pretty strong run – it’s only natural to see prices pull back from current levels,” said Tim Radford, analyst at Sydney-based adviser Rivkin. “Whether we will see a sustained move downwards will come down to what we see tomorrow with China’s GDP.