13.08.201305:48:38UTC+00Gold prices swing as dollar gathers strength

Gold futures plays back and forth between minor losses and gains Tuesday, with strength in the U.S. dollar serving as a headwind ahead of U.S. retail-sales data that may support the Federal Reserve’s plan to start tapering financial stimulus.

Gold for December delivery depreciated by $1.10, or 0.1%, at $1,333.20 an ounce in electronic transaction.

Gold prices on Monday skyrocketed $22, or 1.7%, on the New York Mercantile Exchange, extending their gaining streak to four sessions in the wake of better-than-expected economic data from China. China is assumed this year to overtake India as the world’s biggest gold consumer, according to the World Gold Council.

But gold on Tuesday had to fight a surge in the dollar versus major rivals, including the euro and the Japanese yen. A report that Japan is considering a corporate sales-tax cut lifted Japanese equities but zapped the currency. Dollar-denominated commodities such as gold tend to come under pressure when the dollar strengthens, as it makes them more expensive to holders of other currencies.

The dollar also rose ahead of Tuesday’s release of the U.S. retail-sales report for July, and economists polled by MarketWatch expect growth of 0.3%.

Improvement in the economy is what policy makers at the Federal Reserve are looking for as they determine when to start reducing asset purchases aimed at encouraging growth. A tapering of assets is considered helpful for the dollar’s value, but a negative for gold.

“With the backdrop of very low equity volatility and the S&P 500 gained 19% on the year, compared to a 21% retreat in gold, we expect the performance differential between gold and the S&P 500 to narrow rather than widen as the market increasingly prices in the reduction of U.S. Federal Reserve accommodation,” ETF Securities director of U.S. Research Mike McGlone wrote in a report Monday.

Silver for September delivery slide lower by 13 cents, or 0.6%, to $21.20 an ounce. Silver prices on Monday stepped up 4.6% to above $21 an ounce for the first time since June 19, according to FactSet.

Silver, along with more industrial-sensitive precious metals, saw price hikes last week, taking advantage from improving sentiment on “improving global economic prospects and strong physical demand,” said McGlone.

The most recent reports from China include gains in both exports and imports in July, and a 9.7% jump in industrial production from the year-earlier period.

Despite some upbeat reports, “we view the latest data as being an upward blip in what we think remains a deceleration in China’s growth trajectory,” said INTL FCStone metals analyst Edward Meir in commentary on base metals Monday.

“Having said that, base-metal prices will likely remain resilient at least through August, and it may not be until mid-September when markets turn sloppier in the aftermath of the Fed’s tapering program and perhaps the resumption of weaker numbers coming out of China,” said Meir.

Among base metals, copper for September delivery was unmoved at $3.30 a pound.

Futures for palladium and platinum, precious metals with industrial uses, were mixed. September palladium dropped $1.10, or 0.2%, to $736.50 an ounce, while October platinum held steady at $1,498.70 an ounce.