By Polya Lesova and Sarah Turner, MarketWatch
LONDON (MarketWatch) — Gold futures dropped Tuesday, snapping their recent rally, as global equity markets posted gains, buoyed by better-than-expected data from China.
Gold for December delivery GC1Z -0.16% fell $6.20 to $1,885.70 an ounce in electronic trading on Globex.
The December contract rose $39.70, or 2.1%, Monday to settle at $1,891.90 an ounce on the New York Mercantile Exchange. Those gains took the metal to its fifth nominal settlement record in six trading sessions.
Investors’ appetite for assets perceived as risky was buoyed Tuesday by a preliminary reading of China’s August purchasing managers index, which rose to 49.8 from 49.3 in July. The data showed that activity in China contracted, but it was much better than analysts expected. As a result, Asian stock markets posted gains overnight and European equities were higher in morning trading.
U.S. stock futures also pointed to a higher opening on Wall Street.
Meanwhile, Citigroup strategists raised their price forecasts for gold, a move they said was made “to accommodate the impact that global financial tension is having on the metal.”
“Fears about sovereign defaults and currency debasement have left many investors concerned about switching from equities into government bonds, and cash hardly looks an attractive alternative when real rates are negative. Gold has therefore been the main beneficiary of all these concerns,” they said.
The strategists raised their 2011 forecast to $1,590, from $1,440; the 2012 forecast to $1,650, from $1,325; and the long-term real forecast to $1,050 from $950 an ounce.
Still, the kind of gains seen for gold recently are likely to be unsustainable, they said. “We expect those tensions and concerns to dissipate over time and do not believe that (price-sensitive) jewelry demand will be able to make up for the loss of investment demand once sovereign financial tensions ease,” they added.
