Gold prices have steadied near three-week highs as weak economic data from the U.S. has increased expectations that the Federal Reserve may have limited room to continue raising interest rates. The recent gains in the yellow metal were driven by weak U.S. GDP and employment readings, which resulted in a decline in the dollar and Treasury yields. Additionally, gold experienced increased safe haven demand due to growing concerns about a slowdown in the Chinese economy, reflected in weak data from China.
Here are the key points:
Spot gold has risen by 0.2% to reach $1,945.49 per ounce, while gold futures expiring in December have stabilized at $1,972.25 per ounce as of 00:28 ET (04:28 GMT). Both instruments have recorded gains of approximately 1.6% during the course of the week.
The dollar has declined by nearly 1% over the week, and Treasury yields have retreated from recent peaks, driven by weak economic data that has increased expectations of a less hawkish stance from the Federal Reserve.
The focus is currently on the forthcoming personal consumption expenditures (PCE) data, which is the Fed‘s preferred inflation measure. This data release is expected to provide more insights into the central bank’s monetary policy approach.
Nonfarm payrolls data for August is set to be released on Friday. Analysts anticipate further cooling in the job market, which could provide the Fed with less incentive to continue raising interest rates.
Historically, gold has shown limited positive reactions to nonfarm payrolls data, particularly in recent times when the figures have consistently exceeded expectations.
Despite the U.S. economy showing signs of slowing down, the outlook for gold remains uncertain due to the potential for U.S. interest rates to remain higher for an extended period. This uncertainty is compounded by persistent inflation.
Higher interest rates contribute to a higher opportunity cost for investing in non-yielding assets like gold. This trend has negatively impacted gold’s performance over the past year.
In the industrial metals sector, copper prices have declined due to weak economic signals from China, the world’s largest copper importer.
Copper futures have fallen by 0.2% to $3.8310 per pound. However, they have still registered strong gains during the week, partly due to the impact of a weaker U.S. dollar.
Data from China revealed that the manufacturing sector contracted for the fifth consecutive month in August, accompanied by a slowdown in non-manufacturing growth. These readings indicate continued economic challenges in China, despite the government’s efforts to implement stimulus measures.
Attention is now focused on additional stimulus measures from Beijing. Media reports suggest that the People’s Bank of China plans to further reduce mortgage and yuan deposit rates to enhance liquidity in the economy.
