Gold prices drop 1% as dollar, yields firm after upbeat US data

Gold prices experienced a significant decline of over 1% on Monday, April 7, 2024, according to market data provided by MarketScanner.com. The decrease in gold's value was a result of a strengthening U.S. dollar and rising Treasury yields following the release of upbeat economic data from the United States.

The U.S. economy showed signs of continued growth with the latest data releases. The Institute for Supply Management (ISM) reported that its manufacturing index came in at 57.5 for March, which was higher than expected and indicated expansion in the sector for the eleventh consecutive month. Additionally, the U.S. construction spending for February increased by 0.5%, exceeding analysts' forecasts.

These positive economic indicators led to a stronger U.S. dollar, making gold more expensive for buyers holding other currencies. Furthermore, the stronger economic data also caused a rise in U.S. Treasury yields, making gold less attractive to investors seeking safe-haven assets due to its lower yield compared to bonds.

The Federal Reserve had previously signaled its intention to deliver three interest rate cuts this year in response to global economic uncertainty and weak inflation. However, the recent upbeat U.S. economic data has raised doubts among investors about the necessity of such aggressive rate cuts. This uncertainty has contributed to the sell-off in gold, as investors reassess their expectations for the Fed's monetary policy.

As of 0109 GMT, spot gold was trading at $2,305.09 per ounce, having earlier reached a session low of $2,302.30. The precious metal's decline came after it hit a high of $2,337.30 in intraday trading on March 31, 2024.

In summary, gold prices dropped by over 1% on Monday due to a stronger U.S. dollar and rising Treasury yields following the release of upbeat U.S. economic data. The positive economic indicators have raised doubts about the Federal Reserve's plans for three interest rate cuts this year, leading to a sell-off in gold.