The prices of gold dipped on Wednesday as the robust U.S. manufacturing data lifted the dollar. The recovery of the U.S. dollar from a two-year low made the yellow metal more expensive for investors using other currencies. The positive economic data also raised hopes for a quicker global economic recovery and investors’ appetite for riskier assets that, in turn, lowered the demand for the safe-haven bullion.
Spot gold is currently trading at $1,964.77 per ounce as of 0834 GMT.
The data from the Institute for Supply Management (ISM) showed that national factory activity in the U.S. increased from 54.2 in July to 56.0 in August. It is the third consecutive month of growth and the highest reading in almost two years.
DailyFx strategist Margaret Yang commented that while the strong dollar is definitely pressuring the bullion, the broader picture still favors the precious metal. It is because central banks around the world are likely to remain accommodative until their economies recover from the COVID-19 pandemic. It will stabilize the demand for gold since it is often used as a hedge against currency debasement and inflation. Also, low-interest rates make the non-yielding cheaper for investors.
Another factor that works for gold is the new monetary policy approach of the U.S. Federal Reserve to keep the interest rates low for a longer time. Phillip Futures’ senior commodities manager Avatar Sandu noted that the Fed is likely to keep the rates close to zero because it still worries about the outlook of the American economy. Meanwhile, Lael Brainard, a member of the Fed’s Board of Governors, said the central bank needs to roll out additional economic stimulus to achieve higher inflation and job growth.
On the technical front, Reuters’ technical analyst Wang Tao predicted that spot gold prices might drop to the $1,938 an ounce level since it failed to break the resistance price level at $1,996.