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Gold prices sank Friday after data showing surprising strength in U.S. business activity boosted the dollar and bond yields, wiping out gold’s gains made during the rest of the week.
The S&P Global U.S. Composite Purchasing Managers Index, which gauges activity in the manufacturing and services sectors, jumped to a 26-month high in June; on the services side, the PMI flash services activity index hit its 17th straight month of growth, while on the manufacturing side, the flash reading climbed to a three-month high.
Gold had gained in the previous session on weaker than expected U.S. economic data, which had raised market hopes that the Federal Reserve may cut interest rates sooner rather than later.
Front-month Comex gold (XAUUSD:CUR) for June delivery finished Friday -1.6% to $2,316.40/oz, losing 0.6% for the week, while front-month June silver (XAGUSD:CUR) ended -3.9% on Friday and 0.6% for the week to $29.573/oz.
Also, palladium was +3.2% at $953.17/oz on Friday, after rising more than 11% to $1,029/oz earlier in the session.
“There has been some significant palladium ETF buying recently which has caused a short-term physical shortage and brought the front of the forwards market into backwardation,” New York-based independent metals trader Tai Wong told Reuters.
This has “created some havoc on the EFP market which is thin to begin with and caused a lot of volatility and short-covering,” Wong said, adding that he sees the volatility continuing for a few more days.
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Investors should brace for higher volatility in the gold market this summer, Chantelle Schieven, Head of Research at Capitalight Research, told Kitco.com.
Summer markets generally see lower liquidity, which can generate higher volatility, Schieven said, and at the same time, market uncertainty remains extremely elevated as markets try to guess the Federal Reserve’s next move.
“Every piece of data that comes outside of expectations has been enough to shift interest rate expectations back and forth, driving gold up and down,” although gold has established a solid floor at ~$2,280/oz, she told Kitco.
“Underlying activity in the labor market is weak, and that will prompt the Federal Reserve to cut rates after the summer,” Schieven said.