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Gold Prices Tumble on Strong Manufacturing Activity

Stocks in this article: GLDIAUSGOL

NEW YORK (TheStreet) -- Gold prices were tumbling on Monday after robust manufacturing data for November hit highs not seen in two-and-a-half years.

The Institute for Supply Management's November manufacturing index released Monday hit 57.3, the strongest reading since April 2011. The uptick in U.S. manufacturing activity sank gold prices as positively trending economic data makes the yellow metal less appealing.

COMEX Gold for February delivery was dropping $25.50 to $1,224.90 an ounce. The gold price traded as high as 1,251.20 and as low as $1,223.70 an ounce, while the spot price was losing $24.13.

"It's a dim beginning for December," George Gero, precious metals strategist at RBC Capital Markets, said in a phone interview from New York. Gero said the solid manufacturing data triggered a drop in bond prices and an increase in yields -- a move that he said takes away the inflationary hedge for gold -- and a strengthening of the U.S. dollar.

Gold booked its worst November decrease since 1978, according to David Govett, Marex Spectron's head of precious metals. The fall came as market participants continue to anticipate the Federal Reserve to scale back its economic stimulus program -- a move that many analysts said could happen sooner rather than later due to the improving U.S. economic data.

The Fed has reiterated that it would begin to "taper" its $85 billion in monthly purchases of mortgage backed securities and longer-term Treasuries when the economy showed enough improvement to be able to sustain such a move.

Gold's appeal among investors since the Fed began quantitative easing after the 2008 financial crisis has been as a hedge against inflation. While many economists argue that the Fed's monetary stimulus could have long-term effects on inflation, monthly data hasn't supported such an event, at least in the immediate term. The lack of an inflationary environment coupled with the Fed's pullback would suggest even less inflationary pressure ahead.

Improving economic data, like the November manufacturing survey that printed on Monday, adds more evidence that the Fed's stimulus actions are becoming less necessary, giving central bankers reason to scale back asset purchases sooner than expected.

Silver prices for March 2014 delivery were dropping 58 cents to $19.46 an ounce, while the U.S. dollar index was gaining 0.3% to $80.89.

The kickoff last Friday to the U.S. holiday shopping season showed higher volumes of purchases but lower spending from a year ago. This news though wasn't enough to offset the big losses in gold and silver prices.

Gold ETF SPDR Gold Trust (GLD) was sliding 2.1% to $118.16, while iShares Gold Trust (IAU) was off 2.1% to $11.88.

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