Gold down as strong shares, US yields offset weaker dollar

[LONDON] Gold edged down on Wednesday, as the impact of stronger European shares and higher US real yields counteracted the effects of a weaker dollar and prospects that the Federal Reserve will not raise interest rates at its meeting in June.

Spot gold was down 0.2 per cent at US$1,190.53 an ounce by 1011 GMT, while US gold futures for June delivery lost US$3.20 an ounce at US$1,190.00.

Gold was depressed by rebounding European shares as strong euro zone services data and corporate results offset a sell-off in the region's government bonds and a rise in the euro.

The metal, which pays no interest, was also under pressure from a two-month high in the benchmark 10-year US Treasury yield. "One might be puzzled why the gold price is not reacting to a weaker dollar but you have to look at US real yields, which correlate the most to the gold price, and these have risen," Macquarie analyst Matthew Turner said. "That's what's driving gold prices...because we think the Fed is going to raise interest rates sooner than expected." The dollar fell 0.4 per cent against a basket of currencies, after disappointing US trade data for March painted an even bleaker picture of the economy in the first quarter.

The sluggish data added to the view that the Federal Reserve will not raise interest rates at a policy meeting in June, a factor that could boost demand for bullion, a non-interest-paying asset.

Fed officials have given conflicting signals this week on the possible timing of any rate increase, providing no clarity on the issue.

Later on Wednesday, the focus will shift to a report on US private-sector employment that may affect expectations for Friday's US nonfarm payrolls report, which will give a better read of the economy and clues on the timing of a rate hike. "The firm oil price and the widening US trade gap provided support for gold, with the key nonfarm payrolls this Friday likely to be the next major catalyst," MKS Group said in a note.

Higher oil prices - Brent crude hit a 2015 high on Wednesday - could boost demand for gold, which is seen as a hedge against oil-led inflation.

In other industry news, China conducted trial runs for the planned launch of a yuan-denominated gold fix last month, three sources familiar with the matter said, in a sign the world's second-biggest bullion consumer was moving closer to creating a benchmark price.

Silver was down 0.6 per cent at US$16.43 an ounce. Platinum fell 0.1 per cent at US$1,141.50 an ounce, while palladium was unchanged at US$789.95 an ounce.

REUTERS