Gold Ends Near $1200 On Strong Dollar, Soft Data

(RTTNews) - Gold futures dropped to end at a more than seven-week low on Wednesday, as the dollar trended higher and some downbeat U.S. economic data dented expectations of a Federal Reserve interest rate hike in June. At close, gold prices perched on the $1200 an ounce-mark.

The drop comes even as the Lunar New Year holidays begin Thursday in China, which is one of the largest consumer of the precious metal in the world, and investor await the minutes from the U.S. Federal Reserve's January policy meet.

With some progress toward an agreement to resolve the Greece crisis in Europe, the safe haven appeal of gold also diminished considerably.

Dangerously subdued inflation remains an issue for the Federal Reserve. With energy prices falling, the U.S. producer price index fell more than expected, the Labor Department said Wednesday.

Meanwhile, a Commerce Department report on Wednesday showed U.S. housing starts to have pulled back more than expected in January, after reporting a substantial rebound in new residential construction in the previous month.

A Federal Reserve report on Wednesday showed industrial production in the U.S. to have increased modestly in January, was short of what economists expected.

Gold for April delivery, the most actively traded contract, dropped $8.40 or 0.7 percent to settle at $1,200.20 an ounce, on the Comex division of the New York Mercantile Exchange on Wednesday. This is the lowest settlement since January 2.

Gold for April delivery scaled an intraday high of $1,211.60 and a low of $1,197.20 an ounce.

On Tuesday, gold ended at $1,208.60 an ounce, down $18.50 or 1.5 percent, with investors anticipating some low physical demand on the eve of the Chinese New Year holidays.

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, remained unchanged at 768.26 tons on Wednesday, from its previous close on Tuesday.

The dollar index, which tracks the U.S. unit against six major currencies, traded at 94.46 on Wednesday, up from its previous close of 94.13 on Tuesday in North American trade. The dollar scaled a high of 94.53 intraday and a low of 94.01.

The euro trended lower against the dollar at $1.1339 on Wednesday, as compared to its previous close of $1.1413 on Tuesday in North American trade. The euro scaled a high of $1.1418 intraday and a low of $1.1336.

In economic news from the U.S., a Labor Department report showed producer prices fell much more than expected in January, reflecting another substantial decrease in energy prices. The producer price index for final demand slumped 0.8 percent in January after edging down by 0.2 percent in each of the two previous months. Economists expected the index to drop by 0.4 percent. This is the biggest monthly decrease since the final demand series began in November of 2009.

A Federal Reserve report on Wednesday showed industrial production in the U.S. to have increased modestly in January, partly reflecting a significant rebound in utilities output. Industrial production edged up by 0.2 percent in January after dipping by a revised 0.3 percent in December. Economists expected production to rise by 0.3 percent compared to the 0.1 percent drop originally reported for the previous month.

A Commerce Department report on Wednesday showed U.S. housing starts to have pulled back more than expected in January, after reporting a substantial rebound in new residential construction in the previous month. Housing starts in January tumbled 2.0 percent to an annual rate of 1.065 million after jumping 7.1 percent to the revised December estimate of 1.087 million. Economists expected housing starts to fall by 1.7 percent to a rate of 1.070 million in January from the 1.089 million originally reported for the previous month.

U.S. mortgage applications tumbled last week as interest rates jumped, latest data from the Mortgage Bankers Association showed. Loan applications fell 13.2 percent for the week ended February 13. Refinancing dropped 14 percent, and in a sign that potential home buyers are extremely sensitive to interest rates, home purchase applications were down 7 percent.

Data from the Office for National Statistics on Wednesday showed the U.K. unemployment rate to have declined to its lowest in more than six years in the fourth quarter of 2014, while earnings increased more-than-expected and remained well above inflation. The jobless rate dropped to 5.7 percent during the October to December period, which is below the 6 percent recorded during the three months to September. Economists had forecast a jobless rate of 5.8 percent.

The Bank of Japan on Wednesday kept its monetary policy unchanged as expected, but lowered its inflation assessment after data showed earlier this week that the country exited recession. The bank voted 8-1 to maintain its target of raising the monetary base at an annual pace of about JPY 80 trillion. The bank also left its asset purchase policy unchanged.

Eurozone construction output declined for the second straight month in December, at a faster pace, data from Eurostat showed. Output in the construction sector fell 0.8 percent month-on-month in December, following a 0.5 percent drop in November, which was revised from a 0.1 percent decrease.