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Gold prices gain slightly in early Asia in pause of recent selloff

CommoditiesJun 01, 2016 08:14PM ET
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Gold inches higher in Asia

Investing.com - Gold rose slightly in early Asia on Thursday as investors continued to assess the prospects of a rate hike as early as this month by the Federal Reserve.

On the Comex division of the New York Mercantile Exchange, Gold for August delivery inched higher to $1,215.55 a troy ounce.

Silver futures for July delivery rose 0.27% to $15.975 a troy ounce. Copper futures for July delivery gained 0.29% to $2.077 a pound.

Overnight, gold continued its steady decline on Wednesday, remaining near three-month lows, as stronger than expected manufacturing data in the U.S. potentially increased the likelihood that the Federal Reserve will raise interest rates when it meets next later this month.

Gold is coming off its worst month of the year when the yellow metal tumbled more than 5%, amid strong indications from the Fed that the U.S. central bank could further tighten its monetary policy cycle at some point this summer.

On Wednesday morning, Gold fell precipitously erasing gains from earlier in the session after the Institute for Supply Management (ISM) said that its Manufacturing Index for May ticked up 0.5 to 51.3, above consensus forecasts of 50.6. The positive reading could be a reflection of a five point jump in the delivery component, which could indicate stronger demand or severe delays in the supply chain. New orders, meanwhile, fell 0.1 to 55.7, while export orders remained unchanged at 52.5 remaining considerably above contraction.

Simultaneously, the U.S. Commerce Department reported that construction spending plummeted 1.8% in April, recording its worst performance since January, 2011. Analysts expected to see an increase of 0.6% for the month. As a result, construction spending over the last year has slowed to 4.5% from 8% in March.

Over the last two weeks, key policymakers from the Federal Open Market Committee (FOMC) have sent strong indications that they could raise short-term interest rates when they convene for a two-day meeting on June 14-15. The FOMC's benchmark Federal Funds Rate has remained steady at its current level between 0.25 and 0.50% in each of its first three meetings this year.

Last Friday, Fed chair Janet Yellen said at a closely-watched appearance at Harvard University that it could be appropriate to raise rates in the near-term future if the economy and labor markets continue to show improvement.

Any rate hikes by the Fed this year are viewed as bearish for gold which struggles to compete with high-yield bearing assets in rising rate environments.

In overnight, Asian trading, China's official PMI index for May came in at 50.1, remaining unchanged from the previous month. Analysts anticipated a reading of 50.0. Earlier, China's Caixin PMI survey fell slightly by 0.2 to 49.2, below consensus forecasts of 49.3.

China is the world's largest producer of gold and the second-largest consumer of the precious metal behind India.

Gold prices gain slightly in early Asia in pause of recent selloff
 

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