Gold prices down further on unexpected drop in China HSBC flash PMI

March, 24, 2014

Gold prices eased further in Asia on Monday after the China HSBC Flash Purchasing Managers Index for March unexpectedly fell, casting doubt on demand from China, which regularly changes places with India as the world's top importer of the yellow metal.


On the Comex division of the New York Mercantile Exchange, gold futures for May delivery $1,327.10 a troy ounce, down 0.67%, after settling last week at $1,379.00 a troy ounce for a loss of 3.11%, or $43.00, the worst since November, amid expectations that the Fed could hike interest rates earlier than previously thought.

The HSBC data for March showed a drop to 48.1, compared to a forecast of 48.7 expected and to a final of 48.5 for the previous month. A figure below 50 implies contraction with the the latest number part of a string of disappointing China data suggesting a deepening economic slowdown at the start of 2014.

"The HSBC Flash China Manufacturing PMI reading for March suggests that China's growth momentum continued to slow down. Weakness is broadly based with domestic demand softening further," said HSBC chief China economist Qu Hongbin.

"We expect Beijing to launch a series of policy measures to stabilize growth. Likely options include lowering entry barriers for private investment, targeted spending on subways, air cleaning and public housing, and guiding lending rates lower."

Gold sold off and the U.S. dollar rallied after Fed Chairwoman Janet Yellen indicated on Wednesday that the central bank could begin to raise interest rates about six months after its bond-buying program winds up, which is expected to happen this fall.

The comments prompted investors to bring forward expectations for a rate hike to as soon as March of next year.

The central bank said that it would reduce its monthly stimulus program by an additional $10 billion to a total of $55 billion a month, in a widely anticipated decision.

The Fed also updated its forward guidance, discarding the 6.5% unemployment threshold for considering when to increase borrowing costs and said it will look at a wide range of information.

Meanwhile, investors continued to monitor events in Ukraine, where tension over moves by neighboring Russia in the Crimean region have heightened demand for safe haven assets.

The political standoff between the West and Russia following the annexation of Crimea escalated after the U.S. imposed harsher sanctions on Moscow. The European Union also agreed to wider sanctions against Russia.

In the coming week, investors will be looking ahead to U.S. data from the housing sector, as well as reports on consumer confidence and durable goods to further gauge the strength of the economy and the need for stimulus.

Data from the Commodities Futures Trading Commission released Friday showed that hedge funds and money managers increased their bullish bets in gold futures in the week ending March 18.

Net longs totaled 138,429 contracts, up 11.1% from net longs of 123,007 in the preceding week.

Also on the Comex, silver for May delivery traded at $20.175 a troy ounce down 0.66%, and copper for May delivery traded at $2.935 a pound, down 0.45%,

On Monday, the U.S. is to release preliminary data on manufacturing activity.