The combination of dollar strength, especially against the yen, and a further increase in global bond yields triggered renewed selling on gold with prices sliding to the lowest level for 10 months.
The headline US ADP employment increase was much stronger than expected at 216,000 compared with an expected 160,000, although there was a downward revision to October at 119,000.
PCE core prices data had little impact with the annual rate in line with expectations at 1.7% and unchanged from the previous month.
Subsequently, the Chicago PMI index strengthened sharply to 57.6 for November from 50.6 previously and was the strongest rate since early 2015.
Although some of the underlying components were less impressive, the headline-grabbing beats on expectations were important in providing underlying dollar support.
Oil markets were inevitably an extremely important focus on the day with prices surging following OPEC’s production-cut agreement. The strength in oil prices was a key factor in pushing global bond yields higher as inflation concerns increased with US 10-year yields pushed to fresh 18-month highs above 2.40%.
Higher yields were an important element in triggering dollar strength against the yen with a peak at the highest level for close to nine months. Although there was choppy trading across major currency pairs, overall dollar strength and higher yields pushed gold prices lower.
Sentiment was further damaged by a break below the $1,180 area, which triggered a fresh round of stop-loss selling and lows just below $1,165 after the European close. This was the lowest level for 10 months and gold also recorded its largest monthly decline in 3 years.
Investor interest remained weak with an outflow of close to 60 tonnes from the SPDR Gold Trust during November, the sharpest decline since May 2013. If outflows continue, gold will continue to attract sharp selling on rallies.
The dollar was subjected to a correction later in Thursday’s Asian session and gold rallied to the $1,175 area.
Rallies quickly attracted fresh selling interest as the dollar found support at lower levels and there was a renewed move higher in global bond yields on Thursday. Gold edged back below $1,170 ahead of the US open as sentiment remained weak.
The US ISM manufacturing index will have a significant influence in US trading with gold likely to gain modest relief if there is a weaker than expected release. Overall yield trends will be important with some underlying consolidation realistic ahead of Friday’s employment report unless there is substantial selling pressure in equities.