Gold Drops Some This Morning

Gold Dropped Some This Morning

Gold drops some this morning as U.S. stocks regain ground and new economic data reveals surprise manufacturing expansion. The yellow metal had remained relatively steady through the weekend, coming slightly off a four-week high, after the People’s Bank of China intervened to support its economy.

U.S. stocks in recovery mode this morning with the Dow opening just shy of a 300-point gain, while the U.S. dollar Index is also stronger.

This morning’s Institute for Supply Management (ISM) Index delivered surprising numbers for U.S. factory activity, rebounding for January after falling for five straight months. The Index increased to 50.9 last month, up from 47.8 in December. A reading above 50 indicates expansion in the manufacturing sector, which accounts for 11% of the U.S. economy. A Reuters poll of economists had forecast 48.5 in January.

Meanwhile, CNBC’s Elliot Smith posted a detailed positive analysis with the conclusion that gold’s continued flirtation with multi-year highs is more than just a reaction to the coronavirus scare.

The PBOC cut reverse repo rates and injected liquidity into markets, stepping in as Chinese equities sank 9% on markets’ first day back after the coronavirus crisis spread extended the Lunar New Year break. The World Health Organization last week declared a global health emergency because of the coronavirus. First detected in Wuhan, China, the coronavirus has killed 362 people and has sickened more than 17,000 around the world as of early Monday and has shut down large swaths of China.

While investors often turn to safe-haven investments like gold in times of uncertainty, the PBOC’s pledge to support the economy makes gold less attractive as an alternative investment. Other commodities plummeted, with markets for raw materials such as base metals, energy and agriculture hit hard.

Front-month gold futures rose 0.6% last week to settle at $1,587.90 an ounce on Comex. The April contract dropped $1.30 Friday. Futures gained 4.3% in January, the best monthly performance since August. The April contract is currently at $1,577,50.

Speculators cut their bullish positions in Comex gold contracts in the week ended Jan. 28, according to the U.S. Commodity Futures Trading Commission’s weekly Commitments of Traders report released Friday. And holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, slipped 0.03% Friday to 903.21 metric tons, Reuters reported.

In economic news, Chinese manufacturing worsened in January to its slowest pace in five months. The Caixin manufacturing purchasing managers’ index reached 51.1, down from 51.5 in December and below analysts’ expectations of 51.3. While the data didn’t reflect the coronavirus’s effect on the economy, the epidemic could worsen the outlook for the months to come, according to the South China Morning Post.

First-of-the-month manufacturing numbers from the U.S. are due out later Monday, and key monthly employment numbers come out Friday. The U.S. 2020 presidential-election cycle also kicks off Monday, with the Iowa caucuses. The state is traditionally the first in the nation to make its choices for the Democratic and Republican nominees for president in the general election to be held in November.

Silver dropped 0.6% last week to settle at $18.01 an ounce on Comex. The March futures contract increased 0.1% Friday. Silver futures rose 0.5% in January, lagging gold’s advance.

Spot palladium, a metal used primarily in autocatalysts, rose 18% last month, setting new records amid a supply crunch. But it came off the highs last week, dropping 5.7% for the week and 0.5% Friday. Spot platinum fell 4.5% last week and 1.9% Friday. It declined 0.6% in January.