Gold falls on strengthening dollar

Gold futures fell sharply on Friday in electronic trading, setting up for a weekly loss of about 1%. Meanwhile, the U.S. dollar continued to push past the psychologically important 100 yen level amid signs of modest recovery in the world’s largest economy.

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Gold for June delivery doubled losses and dropped 2.33% to $1,435 an ounce during European trading hours. The precious metal sliced a weekly gain to a loss of nearly 2%, on the heels of two straight winning weeks. However, at this point of time such development is no surprise to market players.

Gold on Thursday fell $5.10, or 0.4%, extending losses after the U.S. Labor Department said weekly initial claims for unemployment benefits fell by 4,000 to 323,000, the lowest level in more than five years. A week prior the Labor Department reported the US economy added 165,000 jobs in April, and that the unemployment rate slipped to 7.5% from 7.6%, blowing out forecasts.

The Federal Reserve has indicated it’s likely to taper monetary stimulus depending on improvement in the labor market. This was somewhat expected move since the start of 2013. The Fed’s quantitative-easing program has been a benefit for gold and other precious metals, as QE tends to pressure the dollar and can lead to inflation. Gold is often seen as an inflation hedge and therefore in times of financial crises becomes subject of investors’ interests. However, with the progress of the economic recovery, market players now do not find many reasons to place their assets in precious metals. Riskier investment options such as equities can deliver better returns.

A stronger dollar tends to hurt prices for dollar-denominated commodities such as gold as it makes them more expensive for holders of other currencies.

Meanwhile, silver for July delivery also fell on Friday to $23.40 an ounce. At present, traders are more optimistic about silver than gold, due to the dual use of the metal in the jewelry and manufacturing industry.

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