Gold Drops in Asia Following Weaker China Consumer Inflation

A drop in Asia’s gold prices on Wednesday happened following China’s consumer inflation fell short of what was expected. This caused views on global inflation’s rise more than expected in 2018 to come to a halt.

Gold bars and coins

Gold futures for February delivery on the Comex division of the New York Mercantile Exchange dropped to $1,312.10 per troy ounce or by 0.12 percent.

Other precious metals traded down as well. Silver futures were down 0.75 percent to $17.01 per troy ounce. Platinum futures fell to $972.40, losing 0.41 percent. Copper dropped as well to $3.22 or 0.03 percent.

Natural gas on the other hand was up 1.87 percent to $2.89. The rise happened alongside the Energy Information raising its estimate on natural gas production to around 80.4 billion cubic feet per day by 2018. This was a 6.9 billion increase from the previous year.

Dollar Support, Gold Price Expectations

Gold prices continued to drop from multi-month highs on Tuesday due to the surge of treasury yields. The increase supported dollar strength amid growing expectations of monetary policy tightening after BOJ cut its long-term bond purchase.

Due to the environment becoming more focused on interest rates, investor appetite for gold has weakened. Another factor was the increasing opportunity costs of holding the precious metals, which is relative to other interest-bearing assets.

Some market participants alleged that gold can further retreat towards its 100-day moving average with is around $1,290. However, recent data showed ongoing support for gold. This was seen through bullish bets on the precious metal being increased by hedge funds and spectators.

The Commodity Futures Trading Commission (CFTC) released a report on Friday. According to CFTC, Comex gold futures and options’ net long position climbed to 152,650 contracts, a nearly 40 percent increase.

Another factor that supported the Dollar was a drop in safe-haven demand. This happened alongside global equity markets continuously topping multi year highs amid ongoing risk-on sentiment.

Expectations of gold prices rising to $1,350 an ounce by third quarter this year were set by BofA’s Merrill Lynch. This was despite the possibility of a global monetary tightening from the Federal Reserve, Bank of Canada and Bank of England taking place this year.

The Bank of Canada could increase rates by next week, according to analysts. This is supported by the recent track of positive labor market data which might force central bank’s hand to tighten monetary policy.

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