Gold prices steadied from an overnight 'flash crash' Monday that briefly pulled bullion prices to a four-month low amid a firming U.S. dollar and rising Treasury bond yields.
Friday's stronger-than-expected July employment report, which showed a net 943,000 new jobs were created in the world's biggest economy last month as average hourly wages rose 4% from last year, has trigged bets on a near-term signal from the Federal Reserve on slowing the pace of its $120 billion in monthly bond purchases.
Seen as the early first step in a long series of events that will eventually lead to rate hikes in the world's biggest economy, the data sparked an immediate 4.4% slump in spot gold prices at the start of holiday-thinned trading in Asia, as investors looked to higher-yielding assets, including U.S. Treasury bonds, which traded at 1.3% in the wake of Friday's payroll data.
Curiously, the sharp tick downward in gold prices followed the biggest weekly inflow for bullion -- $700 million, according to data from Bank of America -- in at least two months.
"Traders have been rattled by golds strange behavior in recent weeks when falling yields failed to boost the price, while last week’s small turnaround in yields triggered an immediate and strong negative response," said Ole Hansen, head of commodity strategy at Saxo Bank. "This sort of capitulation can often coincide with a significant low in the market but for that to happen economic data is required to turn more gold friendly."
Spot gold prices traded at $1,740 per ounce in early New York dealing Monday after hitting an overnight low of $1,684.00 per ounce in the Asia session. The move extends gold's one month decline to around 8.6% Comex gold futures for December delivery, meanwhile, were marked 1.15% lower at $1,743.60 per ounce.
The SPDR Gold Trust ETF (GLD) - Get SPDR Gold Trust Report, the world's largest, was marked 1% lower in pre-market trading Monday at $163.00 each, a move that would extend its year-to-date decline to around 8.6%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.002% higher at 92.806, extending its decline from late March to around 9.5%.