Spot gold prices dipped on Monday below the key $1,700 level as a result of China posting its largest trade deficit in over 20 years. China is the world’s second largest economy and top commodities consumer, which is why generally disappointing data on the health of the country’s economy would be negative for commodity prices and especially gold.
China posted a $31.5 billion trade deficit during the month, down sharply from the $27.2 billion surplus shown in January. This raises concerns about China’s growth and demand for commodities. After India, China is the second largest consumer in gold, which is mainly used for jewellery, investment in China. Gold consumption in mainland China increased by 20 percent in 2011, to 769.8 metric tons, according to the World Gold Council, a mining industry trade group.
Meanwhile, a broadly stronger dollar is making dollar-denominated gold appear more expensive for buyers using other currencies. Dollar has been gaining strength as money flows in the safe haven asset in a risk-off environment today.
Spot gold felt to a low of $1,692.90 during European trading hours, down from Friday’s high of $1,714.31.