Futures & Commodities

Gold drops as trade deal hopes boost Wall Street to record

A worker holds a gold bullion on January 13, 2015 at Istanbul Gold Refinery in Istanbul, Turkey.
Ozan Kose | AFP | Getty Images

Gold fell on Wednesday as equities climbed to record levels bolstered by hopes that the United States and China were close to signing an initial trade deal. Also boosting risk appetite was robust U.S. economic data, which assured investors of the health of the country's economy.

Spot gold dipped 0.47% to $1,454.28 per ounce, slipping five sessions in six. U.S. gold futures also shed 0.4% to $1,455 per ounce.

"Given the situation, the statements from the White House that the U.S.- China trade deal may be imminent is continuing to drive risk appetite a bit higher," said Bart Melek, head of commodity strategies at TD Securities. "There is less interest in gold as a hedge, and a higher opportunity cost to hold zero yielding assets like gold."

Wall Street hit fresh record levels on Wednesday while world shares were close to notching a record peak in the session after U.S. President Donald Trump said the world's two largest economies were in the "final throes" of signing an initial trade deal. Market confidence was buoyant and investors moved away from safe-haven gold.

The CBOE VIX equity volatility index, often referred to as a fear gauge, was at seven-month lows. Lack of signs of further monetary policy easing in the near term by the U.S. Federal Reserve did little to support gold. Fed Chair Jerome Powell said on Monday that monetary policy was "well positioned" to support the strong U.S. labor market.

Higher interest rates boost the dollar, making dollar-denominated gold more expensive for buyers using other currencies, and they reduce investor interest in non-yielding bullion. Boosting market sentiment, U.S. economic growth picked up slightly in the third quarter, rather than slowing as initially reported, assuring markets that the world's largest economy was healthy despite fears of the impact of the long-drawn trade war.

Weekly jobless claims also declined, while core capital goods ordered posted their biggest gain in nine months.

"Gold remains range-bound with hard support sitting toward $1,445-$1,450... While top-side resistance cuts in toward $1,475-$1.480," analysts at MKS PAMP said in a note.

Among other precious metals, silver dropped 0.5% to $16.98 per ounce, platinum was down 1.6% to $893.25. Palladium gained 0.6% to $1,819.82 an ounce.