BULLION GOLD headed for its worst monthly drop in two years on Thursday, nearing the end of July almost 7% down against the Dollar after weaker than expected US GDP data followed the Federal Reserve's latest hint that the central bank is preparing to raise interest rates from 0% in September.
Premiums on Shanghai gold bullion contracts had earlier slipped back to $1.75 per ounce above London quotes, reducing the incentive for new imports to China – the world's No.1 consumer market.
Silver bullion then held firmer than gold, trading 2.7% above last week's new 6-year lows but losing more than $1 per ounce from the end of last month to clear at $14.64 at Thursday's midday benchmark price-setting auction in London.
Gold priced in Dollars ended London trade 1.2% above the new 5-year low hit last Thursday, recovering $10 of an earlier $20 drop following yesterday's release of the US Fed's July statement.
"Expectations of higher rates are one of the factors that has driven gold lower since early 2013," says Mitsui Global Precious Metals analyst David Jollie, also pointing to "the accompanying" strength in the Dollar.
"Once rates do start to rise, the market will have to focus on other issues...and sentiment could simply become more bullish as a result."
Wednesday's Fed statement called the current 0% target for US interest rates "appropriate" more than 6.5 years after it was introduced, but
again said "a wide range of information" will affect the central bank's "assessment" of when it becomes "appropriate to raise the target range", notably "further improvement in the labor market" plus greater confidence that "inflation will move back to its 2% objective."
A surprise jump in personal consumption expenditure prices – a key inflation measure tracked by the Fed – worked to curb economic growth below analyst forecasts, new GDP data showed Thursday.
That growth was deflated by a 2.0% annualized rise in prices, the BEA's data showed – the fastest rate of inflation since Q2 last year, and well above the 1.4% averaged since start 2012.
"The overall message sent by the [Fed's] statement is...one of continued data dependency," notes bullion refiner MKS's trading desk, "with no catalyst for markets to bring forward Fed rate hike pricing materially."
"As a result we are still reliant on the intervening economic data," agrees Chinese-owned investment and bullion bank ICBC Standard Bank, "with either the Fed putting its money where its mouth is and hiking in September, or using better data to tighten the language in [that month's] statement with a view to hiking rates in December."
As the Fed released Wednesday's statement, "Gold closed near $1095 for the eighth consecutive day," notes
bullion market-maker Scotia Mocatta, and is "now flat-lined after the $100 drop from $1200.
"The lack of any bounce from that move suggests that the down side remains the risk."
