METALS : Metals: Gold Tumbles on Higher Dollar

By Benjamin Parkin and David Hodari

Gold prices fell to the lowest point this year as signs of a stronger economy pushed the U.S. dollar higher.

June-dated gold contracts fell 1.8% to $1,294 a troy ounce at the Comex division of the New York Mercantile Exchange, trading at the lowest point since late December. Prices for the precious metal have traded between around $1,365 to $1,300 for most of this year, before tumbling out of the bottom end of that range Tuesday.

"Gold has gotten hammered," said Blue Line Futures LLC, a Chicago-based commodities brokerage, in a note. "What had become an extremely constructive bottoming process over the last two weeks is now out the window."

A rally in the dollar, alongside higher Treasury yields, helped drive much of the selling. A stronger greenback makes commodities like gold more expensive for global buyers, while higher yields make the metal less attractive to some investors.

The WSJ Dollar Index, which tracks the U.S. currency against a basket of others, made a new high for the year, rising 0.6% to 86.90.

The strength in the dollar was driven by Commerce Department data released Tuesday morning that showed Americans spent more in stores, online and at restaurants in April. Retail sales rebounded from a winter lull to rise almost 5% from a year earlier. Better consumption was expected to contribute to economic growth, economists said.

The firmer dollar appeared to outweigh any lingering geopolitical jitters concerning Sino-American trade, Russia or the U.S. withdrawal from the Iran nuclear deal. A new outbreak of violence and political tension in the Middle East was also largely overlooked, despite a tendency among traders to prefer assets like gold at times of mounting instability.

"The escalating violence in the Gaza Strip lent no noticeable support to gold," said Commerzbank AG.

Among current geopolitical risk factors, there is nothing facing investors "in the order of magnitude of North Korea firing missiles over Japan like we saw last year," said Sergey Raevskiy, an analyst at SP Angel.

Copper prices also suffered under the weight of a higher dollar on Tuesday, with contracts for July falling 1.3% to $3.0525 a pound.

Write to Benjamin Parkin at [email protected] and David Hodari at [email protected]