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Gold crashes 2% as dollar firms after U.S. jobs report

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Investing.com - Gold futures extended losses in North American trade on Monday, after falling sharply overnight, as the dollar firmed after data showing improving U.S. wage growth offset an overall weaker payroll report, maintaining expectations of two rate hikes this year.

The Labor Department reported Friday that the U.S. economy added 160,000 jobs last month, the smallest increase since September and well below the 202,000 jobs forecast by economists. However, average hourly earnings rose by eight cents, or 0.3%, bringing the year-on-year increase to 2.5% from 2.3% in March.

Meanwhile, New York Fed President William Dudley said Friday that it was reasonable to expect two more rate hikes this year despite weaker-than-expected April data on hiring.

On Monday, Charles Evans, president of the Chicago Fed, said the U.S. economy's fundamentals are solid and growth this year should pick up to around 2.5%, while adding that the Fed's current 'wait and see' approach to monetary policy is appropriate.

The U.S. dollar index, which measures the greenback's strength against a trade-weighted basket of six major currencies, rose to 94.13 in early trade Monday, the most since April 28. It last stood at 94.04, up 0.22% for the day.

A stronger U.S. dollar usually weighs on gold, as it dampens the metal's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.

Gold for June delivery on the Comex division of the New York Mercantile Exchange fell by as much as 2% to a daily low of 1,268.00 a troy ounce, before recovering slightly to $1,270.50 ounce by 13:35GMT, or 09:35AM ET, down $23.50, or 1.82%.

On Friday, gold rallied $21.70, or 1.71%. Prices of the precious metal advanced $3.50, or 0.29%, last week, the second straight weekly gain, amid speculation the Fed will take a slow and cautious approach to raising interest rates this year.

Prices of the yellow metal are up nearly 20% so far this year as expectations faded that the Fed would move to normalize interest rates due to fears over the global economy.

Gold is sensitive to moves in U.S. rates, as a rise would lift the opportunity cost of holding non-yielding assets such as bullion. A gradual path to higher rates is seen as less of a threat to gold prices than a swift series of increases.

In the week ahead, investors will continue to focus on U.S. economic reports to gauge if the world's largest economy is strong enough to withstand further rate hikes in 2016, with Friday's retail sales data in the spotlight. In addition, there are more than a half-dozen Fed speakers on tap as traders search for more clues on the timing of the next U.S. rate hike.

Elsewhere on the Comex, silver futures for July delivery slumped 39.7 cents, or 2.27%, to trade at $17.13 a troy ounce during morning hours in New York, while copper futures sank 4.8 cents, or 2.23%, to a four-week low of $2.107 a pound.

New York-traded copper prices plunged 11.7 cents, or 5.62%, last week, its largest weekly loss since early 2015, on worries over China's economy.

Monthly trade data released on Sunday, which showed that both exports and imports fell more than expected in April, added to concerns over the health of the world's second largest economy.

Exports slumped 1.8% from a year earlier, worse than forecasts for a decline of 0.1%, while imports dropped 10.9%, compared to expectations for a fall of 5.0%. That left China with a surplus of $45.6 billion last month, the General Administration of Customs said.

The Asian nation will also publish data on April consumer and producer price inflation on Tuesday, followed by reports on industrial production, fixed asset investment and retail sales late on Friday.

China is the world's largest copper consumer, accounting for nearly 45% of world consumption.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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