Gold prices gain as China reports weaker prices, copper down

Investing.com - Gold prices gained in Asia on Tuesday as weak prices in China paved the way for continued easy policy in one of the top buyers of the precious metal.

Chinese consumer prices fell 0.2% in May, weaker than the flat reading expected, while producer prices edged down 4.6%, also weaker than the 4.5% decline seen.

The data has been volatile of late and thus waning in importance as to market direction, but the People's Bank of China will take note with some policy reaction possible.

China's National Bureau of Statistics said falling vegetable and egg prices dragged the CPI down by 0.39 percentage points.

On the Comex division of the New York Mercantile Exchange, gold for August delivery rose 0.09% to $1,174.70 a troy ounce. China and India vie as the world's top buyers of gold.

Silver for July delivery gained 0.26% to $16.00 a troy ounce.

But copper for July delivery eased 0.01% to $2.702 a pound as the data pointed to weak demand fromt he world's top buyer of the industrial metal.

Overnight, gold futures ticked up on Monday rebounding from three-month low's at the end of last week, as the dollar retreated from a strong rally on Friday.

Gold futures are down more than 4.5% since reaching a three-month high in mid-May, as a wave of optimistic economic data has increased the possibility that the Federal Reserve could raise interest rates in September.

The U.S. Department of Labor said on Friday that non-farm payrolls increased by 280,000 last month, far exceeding expectations for a 220,000 gain. More importantly, average hourly wages rose by 0.3% in May, above analysts' forecasts for a 0.1% gain. The Fed would like to see significant improvements in wage and GDP growth before it decides to lift its benchmark Fed Funds Rate for the first time in nearly a decade.

Gold, which is not attached to dividends or interest rates, struggles to compete with high-yield bearing assets in periods of rising interest rates.

Following the strong jobs report on Friday, the dollar surged nearly 1% -- posting its best one-day move in more than seven sessions. Previously, the dollar moved lower on three consecutive sessions as a sell-off in European sovereign debt spilled over into U.S. bond markets. At one point last week, yields on U.S. 10-Year Treasuries soared above 2.4%, its highest level since October.

Elsewhere, European Central Bank governing council member Christian Noyer told Reuters on Monday that if Greece left the euro zone it would not create a problem for the currency bloc.

The comments come several days after Greece delayed a E300 million loan repayment to the International Monetary Fund, opting to bundle four obligations due this month into one E1.1 payment at the end of June. Greece only has a "matter of days," to reach a deal with its international creditors to unlock critical aid deemed necessary to stave off bankruptcy, Noyer added.

In Germany, U.S. president Barack Obama urged both sides to work collaboratively to reach a deal.

"The Greeks are going to have to follow through and make some tough political choices that will be good for them long-term," Obama said at a news conference. In addition, Obama added that international lenders should "recognize the extraordinary challenges," that Greece is encountering and should work to reach an accord.

Gold is viewed as a safe-haven for investors in periods of severe global economic instability.