Gold Prices Slashed As China Halts Yellow Metal Purchase

Spot gold experienced a significant drop on Friday following China's decision to halt gold purchases in May, according to industry experts.

Gold Price Today

The current gold price has been heavily impacted by the rise in US dollar rates, a crucial element in today's market dynamics. This increase in US dollar rates was mainly caused by better-than-anticipated US job data, directly affecting gold prices.

Additionally, China's pause in gold buying has exacerbated the selling trend. The gold futures contract for the August 2024 expiry on the Multi Commodity Exchange (MCX) opened with a downside gap at Rs 71,149 per 10 gm, hitting an intraday low of Rs 70,927 shortly after the market opened.

In the international market, the spot gold price is around USD 2,295 per ounce, while COMEX gold is trading at USD 2,311 per troy ounce.

Triggers for Gold Price Correction

Praveen Singh, Associate Vice President of Fundamental Currencies and Commodities at Sharekhan by BNP Paribas, explained that spot gold dropped on Friday because China, a significant participant in the gold market, paused its gold purchases in May.

This, combined with a strong US nonfarm payroll report for May, which countered expectations of a July rate cut, caused the metal to reach its highest level since 22 May. The rate cut expectations had gained momentum following rate cuts by the Bank of Canada and the European Central Bank.

Strengthening of the US Dollar

"The US Dollar Index increased by 0.70 per cent to close at 104.93 on Friday, marking a 0.25 per cent rise for the week. The ten-year US yields rose by 3.28 per cent to 4.43 per cent, and two-year US yields increased by over 3 per cent on Friday, closing at 4.89 per cent.

According to the US nonfarm payroll report, US employers added 272,000 jobs in May, surpassing the forecast of 180,000. The unemployment rate was 4 per cent, slightly above the forecast and the previous figure of 3.90 per cent. However, average hourly earnings rose by 0.4 per cent month-over-month and 4 per cent year-over-year, exceeding the respective forecasts of 0.30 per cent and 3.90 per cent," said Praveen Singh.

US Federal Reserve Rate Cut in Focus

Saish Sandeep Sawant Dessai, Analyst for Base Metals at Angel One, attributed the fall in gold prices to the stronger-than-expected US jobs report. He noted that the robust jobs data led to a rally in the dollar, making gold more expensive for foreign buyers.

This development has dampened hopes for interest rate cuts this year, despite earlier gains driven by weaker private payrolls data and expectations of a Federal Reserve rate cut. The Angel One expert added that gold prices are likely to continue declining, pressured by strong US jobs data and the halt in Chinese bullion purchases.