Gold prices have experienced a slight recovery from a recent 10-day low, finding relief as the dollar retreated from nearly six-month highs. Weak economic data from Japan and concerns about worsening U.S.-China tensions have also contributed to safe haven demand for gold. However, gold remains on track for a weekly loss due to renewed concerns about rising interest rates following strong U.S. labor market and inflation data earlier in the week.
Factors Driving Gold Prices:
Dollar and Treasury Yields: Gold was pressured throughout the week by a spike in the dollar and Treasury yields. Although profit-taking in the greenback provided some support to gold prices on Friday, both factors have weighed on the precious metal. The dollar fell nearly 0.2% against a basket of currencies, while 10-year Treasury yields declined by 0.8%.
U.S.-China Tensions: Increasing tensions between the United States and China have sparked safe haven demand for gold. Reports suggesting that China has asked government officials to stop using Apple’s iPhone and calls from some U.S. lawmakers for a blanket ban on tech exports to China have fueled concerns of disruptions in global trade due to a renewed Sino-U.S. trade war.
Federal Reserve Expectations: Strong readings on jobless claims and service sector prices earlier in the week have raised fears that the Federal Reserve may maintain high interest rates. While the central bank is expected to keep rates steady later this month, it is likely to maintain a hawkish stance due to persistent inflation and a strong labor market. Higher U.S. rates could reduce the appeal of gold as a non-yielding asset.
Global Economic Conditions: Declining chances of a U.S. recession have weakened gold’s appeal as a safe haven. However, worsening economic conditions in other parts of the world, such as Japan and China, may continue to support demand for gold.
Other Market Movements:
Copper futures have fallen 0.4% to $3.7453 a pound on concerns about China’s economy. Weaker manufacturing activity and a cash-strapped property market in China have contributed to a 5% decline in copper imports to the country in August. Investors are awaiting potential stimulus measures in the world’s largest copper importer.
Gold futures expiring in December rose 0.3% to $1,948.95 an ounce, while spot gold rose 0.3% to $1,925.04 an ounce. Both instruments are down approximately 0.7% for the week.
Conclusion:
Gold prices have found some support amid a weaker dollar, concerns over U.S.-China tensions, and weak economic data from Japan. However, the overall trend for the week remains bearish due to worries about rising interest rates driven by strong U.S. economic indicators. Gold’s performance in the near term may continue to be influenced by developments in the U.S.-China relationship and Federal Reserve policy expectations.
