Investing.com - Gold prices edged lower in European trade on Wednesday, as a broadly stronger U.S. dollar dampened the appeal of the precious metal.
The dollar climbed to a fresh four-month high early on Wednesday, after data showed U.S. housing starts rose more than expected in June, underpinning a theme of strength in the U.S. economy.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.25% at 97.30, up from levels of around 96.00 just a week ago and the most since March 10.
A stronger U.S. dollar usually weighs on gold, as it dampens the metal's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.
A recent string of upbeat economic reports, including June retail sales, ISM manufacturing and June employment data were all much better than expected, suggesting that economic growth regained speed in the second quarter.
The bullish data could allow the Federal Reserve to raise interest rates later this year, but much will depend on policymakers' assessment of the impact on the U.S. economy of Britain's June 23 vote to leave the European Union.
Interest rate futures are currently pricing in a 47% chance of a rate hike by December. Gold is sensitive to moves in U.S. rates. A gradual path to higher rates is seen as less of a threat to gold prices than a swift series of increases.
Gold for August delivery on the Comex division of the New York Mercantile Exchange shed $6.65, or 0.5%, to trade at $1,325.65 a troy ounce by 07:00GMT, or 3:00AM ET. A day earlier, prices tacked on $3.00, or 0.23%, as a global equity rally ran out of steam.
The yellow metal remained supported amid speculation central banks around the world will step up monetary stimulus in the next few months to counteract the negative economic shock from the Brexit vote.
Market players looked ahead to the outcome of Thursday’s European Central Bank meeting to see if policymakers will step up monetary stimulus in wake of Britain's vote to exit the European Union.
The consensus is that the central bank will leave interest rates on hold, while ECB President Mario Draghi is forecast to strike a dovish tone and perhaps hint at further stimulus to offset the hit to the economy from Britain's decision to leave the EU.
Traders are also focusing on whether the Bank of Japan will expand its monetary stimulus at its policy meeting later this month. The yen has been pressured by expectations that a double-bazooka of fiscal and monetary easing was on the cards in the weeks ahead.
Investors are also wagering on a rate cut from the Bank of England in August.
Expectations of monetary stimulus tend to benefit gold, as the metal is seen as a safe store of value and inflation hedge.
The precious metal is up almost 25% for the year to date, boosted by concerns over global growth and as market players pushed back expectations for the next U.S. rate hike.
Also on the Comex, silver futures for September delivery shed 21.0 cents, or 1.05%, to trade at $19.79 a troy ounce during morning hours in London, while copper futures slumped 1.4 cents, or 0.62%, to $2.249 a pound.