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Gold Prices Drop After Strong US Data, Far East Unrest

gold pricesGold prices dropped after US consumer spending data pointed to a strengthening economy. However, there were limitations on the losses due to Hong Kong’s pro-democracy protests adding concern about China’s growth.

This week, Hong Kong has experienced mass protests, which have created unrest within China and the global financial hub. China operates a special administration region under a formula known as “one country – two systems”, which gives the territory a fraction of democracy. As a result, global shares mostly fell.

In the meantime, US consumer spending increased by 0.5% last month, which suggests that after years of extremely low interest rates, the economy might have finally been pushed into high gear.

Jonathan Butler, strategist with the Mitsubishi Corp (OTC: MSBHF) said that at this time, it is difficult to see any serious upside. Looking at things in detail, the majority of focus is on the current strength of the US dollar and country’s economy.

By mid-afternoon Monday, spot gold had dropped to $1,217.20 an ounce, down 0.2%. Spot was also outperformed by US COMEX gold futures, ending at $1,218.80 per ounce, settling up $3.40.

After hitting a four-year peak earlier Monday and as the market looked ahead to a series of critical economic data, finishing Friday’s release of US September non-farm payrolls, the dollar index went flat. However, gold prices could be affected even more from US data as market players try to gauge the economy’s strength but also any impact on the Federal Reserve policy.

The US central bank could be driven to increase interest rates faster and sooner than anticipated based on strong economic data, which in turn could boost the US dollar but also create risk for non-interest-bearing bullion.

Hong Kong is a major shopping hub for tourists coming from mainland China and because of the current unrest, retail sales in the region could be impacted, especially during the one-week National Day holiday that starts tomorrow.

China is also the biggest buyer of gold in the world. Any decline in consumer demand could challenge a rally in the price of gold. Holdings of SPDR Gold Trust, the largest gold-backed exchange-traded fund in the world, dropped 1.20 tonnes this past Friday, the lowest since December 2008 at 772.75 tonnes. According to analysts, this could be used to gauge broader investor response.

As far as other precious metals, platinum moved up 0.6% to $1,304.49 an ounce, the lowest price since 2013 when it hit $1,289.90, silver dropped 0.5% to $17.53 an ounce, slightly more than its four-year low of $17.30, and palladium saw a 1.9% increase to $785.20 per ounce.

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