Gold prices on Tuesday suffered their steepest one-day drop in nearly six weeks, as data on retail sales and U.S. manufacturing came in better than expected and easing geopolitical tensions between North Korea and the U.S. undercut haven demand for the precious metal.

December gold -0.29% declined $10.70, or 0.8%, to settle at $1,279.70 an ounce, after settling down 0.3% on Monday. Prices saw the largest daily dollar and percentage decline since July 7, according to FactSet data.

September silver tumbled 40.8 cents, or 2.4%, to end at $16.714 an ounce, with the precious-and-industrial metal also marking its worst single-session decline since July 7. It finished lower for the first time in six sessions.

A “strong retail sales read added to the already heavy tape,” said Bill Baruch, chief market strategist at commodities brokerage firm iiTRADER.

Solid economic reports early Tuesday bolstered appetite for assets considered risky. A gauge of New York-area manufacturing soared to 25.2, marking a three-year high in August, a reading on retail sales surged 0.6% in July, while readings for June were increased to 0.3% from 0.2%. Meanwhile, a report on import prices showed an increase of 0.1% in July.

On Monday, “hawkish comments from New York Fed President William Dudley, coupled with a quick relief in geopolitical risk directly associated with North Korea,” had pressured gold prices, said Baruch.

Tensions between Pyongyang and Washington saw further cooling Tuesday as North Korean leader Kim Jong Un announced that he wouldn’t launch a ballistic-missile attack on the U.S. territory Guam, according to the country’s state media.

The receding turmoil comes after days of rhetoric between North Korea and President Donald Trump, who threatened to bring “fire and fury” to that country if it maintained its threatening posture and continued to test fire missiles.

That testy dynamic had weighed on stocks and supported gains in assets considered havens, including gold and 10-year Treasury notes.

An easement between the nations, however, has contributed to a decline in gold and weakness for bond prices Tuesday, with yields on the 10-year notes heading higher.

Gold also declined as the U.S. dollar strengthened. The ICE U.S. Dollar Index +0.01% a gauge of the greenback against a half-dozen rivals, was up 0.5% Tuesday, getting an added boost on the upbeat economic data. A stronger buck can make commodities pegged to the dollar more expensive to buyers using weaker monetary units.

Meanwhile, a Monday research note from UBS research strategist Joni Teves indicated that an upside for gold still exists but acknowledged that it may be limited in the face of what might be bullish momentum for so-called risk assets like the Dow Jones Industrial Average +0.02% and S&P 500 index -0.05% which have recently regained their upward trajectory.

“Overall, we think that there are enough macro factors to keep gold supported. The recent softness in inflation data and downside risks to upcoming releases should help sustain the uptrend, especially to the extent that this creates uncertainty around Fed policy expectations,” UBS wrote.

“Nevertheless, while we maintain our positive outlook on gold, we also recognise that the risks to our price expectations are skewed to the downside,” the report said.

Source: Market Watch

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