Investing.com -- Gold fell sharply on Friday, erasing most of its gains from the previous day's rally, as strong U.S. economic data bolstered a resurgent dollar, potentially increasing the likelihood that the Federal Reserve will raise interest rates before the end of the year.
On the Comex division of the New York Mercantile Exchange, Gold for August delivery traded between $1,319.00 and $1,333.45 an ounce before settling at $1,323.15, down 7.85 or 0.59% on the session. Gold closed Friday's session near three-week lows, ending the week with its second consecutive weekly decline. Although Gold has retreated from 28-month highs from earlier in July, the precious metal is still up by nearly 25% year-to-date.
Gold likely gained support at $1,253.70, the low from June 24 and was met with resistance at $1,368.60, the high from July 7.
The U.S. Dollar continued its upward climb on Friday, amid broad signals that conditions in the struggling manufacturing sector have bottomed. On Friday, the flash reading for July's PMI Manufacturing Index surged more than a full point to 52.9, soaring to its highest level in nine months. The unexpected rise was driven by a flood of new orders, as new business volume expanded at the fastest pace since October, 2015. At the same time, the dollar rose considerably against the British Pound after Markit reported that the British economy shrank at its quickest pace since early-2009, as economists digested the release of the first batch of Post-Brexit data since last month's surprising decision.
Markit's U.K. Flash Composite PMI index for July fell 4.5 points to 47.7, exacerbating fears of an imminent recession throughout Britain. Activity in the Services industry also fell considerably, as the U.K. Services PMI Index plunged 4.9 points to 47.4 from its level in June. As a result, GBP/USD slid more than 1% to an intraday low of 1.3079, falling back to near 1-week lows. Since voters in the U.K. spooked markets with their decision to leave the European Union on June 24, the Pound Sterling has tumbled nearly 12% against the Dollar.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, surged more than 0.50% to an intraday high of 97.59, reaching its highest level since March 10. Dollar-denominated commodities such as gold become more expensive for foreign investors when the dollar appreciates. The Dollar is virtually flat since mid-December when the Federal Reserve ended a seven-year zero interest rate policy by approving its first rate hike in nearly a decade.
Investors await next week's Federal Open Market Committee (FOMC) July meeting for further indications on the timing of the U.S. central bank's next rate hike. On Friday, Fed Future Rates from the CME Group's (NASDAQ:CME) Fed Watch tool placed the odds of a single rate hike in 2016 at just under 50%. Any rate hikes by the FOMC this year are viewed as bearish for gold, which struggles to compete versus high-yield bearing assets in periods of raising rate environments.
Silver for September delivery lost 0.133 or 0.68% to 19.678 an ounce.
Copper for September delivery fell 0.026 or 1.13% to 2.233 a pound.