Gold dips as solid US economic data lift dollar

Reuters September 2 | Updated on September 02, 2020

Manufacturing data boosts hopes of global economic recovery

Gold prices slipped on Wednesday as the dollar rebounded after robust US manufacturing data bolstered hopes around global economic recovery, tempering the safe-haven bullion’s allure.

Spot gold fell 0.3 per cent to $1,964.75 per ounce by 0251 GMT, after hitting its highest since August 19 at $1,991.91 on Tuesday. US gold futures dropped 0.4 per cent to $1,971.80.

“A strong greenback is weighing on the precious metal,” said DailyFx strategist Margaret Yang.

“The broader picture is still in favour of gold, as the US Federal Reserve and other central banks are likely to stay accommodative for an extended period of time.”

The dollar index bounced off two-year lows after US data showed manufacturing activity accelerated to a near two-year high in August. A stronger greenback makes gold expensive for holders of other currencies.

Manufacturing activity

The firm manufacturing activity also boosted investors appetite for riskier assets, limiting inflows into safe-haven bullion.

However, expectations that US interest rates would stay low for longer under the new monetary policy approach from the Fed put a floor under bullion prices.

Fed Governor Lael Brainard, on Tuesday, said the US central bank would need to roll out more stimulus to fulfil its new promise of stronger job growth and higher inflation.

“With the central bank still cautious about the US economic outlook, the Fed will most likely keep rates near zero for a long time,” Avtar Sandu, a senior commodities manager at Phillip Futures, said in a note.

Low interest rates reduce the opportunity cost of holding non-yielding bullion, which is also viewed as a hedge against inflation and currency debasement.

Spot gold may fall to $1,938, following its failure to break a resistance at $1,996 per ounce, said Reuters technical analysts Wang Tao.

Elsewhere, silver dipped 0.2 per cent to $28.11 per ounce, platinum eased 0.3 per cent to $937.87, and palladium fell 0.5 per cent to $2,260.56.

Published on September 02, 2020

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