Gold prices dipped to a one-week low on Tuesday as a stronger US dollar kept safe-haven assets under pressure. Investors also remained cautious ahead of the crucial US jobs report this week, which could influence the Federal Reserve’s interest rate decision in the coming weeks.
Spot gold fell by $10.50 or 0.42% to close at $2,493.80 per ounce on the Kitco exchange in New York, according to data.
As of early Wednesday morning in Asian trading (around 7:00 am Vietnamese time), spot gold was up $0.20, changing hands at $2,494.00 per ounce. When converted using Vietcombank’s selling exchange rate, this equates to approximately 75.2 million VND per tael, a decrease of 300,000 VND from pre-holiday levels.
The US Dollar Index, which measures the greenback’s strength against a basket of six major currencies, settled at 101.83, its highest level in two weeks, according to MarketWatch data. Because gold is priced in dollars, a stronger US currency makes the metal more expensive for buyers using other currencies, thus dampening demand.
The dollar rebounded after touching its lowest level since late 2022 last week as investors scaled back expectations of a half-percentage-point rate cut by the Fed in September. The likelihood of a more modest rate reduction has provided some support to the US currency.
Despite a slight increase in expectations for a 50-basis-point cut on Tuesday compared to the previous session, the dollar continued to strengthen.
FedWatch Tool data from the CME exchange indicates that traders are betting on a 38% chance of a half-point reduction in the Fed’s key interest rate on September 18, with a 62% likelihood of a 25-basis-point cut.
“As long as the dollar is up, commodities are going to be under pressure… But the trend for gold is still going to be up,” said Daniel Pavilonis, senior market strategist at RJO Futures, in an interview with CNBC. “Gold is still within striking distance of those recent highs. But I think right now, investors are waiting for some economic data.”
This week, all eyes are on the August jobs report, which is expected to be released by the US Department of Labor on Friday.
On Tuesday, S&P Global data showed that US manufacturing activity slowed in August compared to July. Additionally, the ISM Purchasing Managers’ Index (PMI) fell short of analysts’ expectations in a Dow Jones survey.
These figures have fueled expectations that the Fed will opt for a more significant rate cut at its upcoming meeting. However, analysts suggest that the jobs report will be the deciding factor in determining the central bank’s course of action.
“If the US jobs report turns out much worse than expected, fears of a US recession and faster Fed rate cuts will be rekindled. This would support gold prices,” Commerzbank said in a report.
In a recent report, Goldman Sachs reiterated its positive outlook on gold, stating that it remains a preferred asset for hedging against geopolitical and financial risks. The investment bank also highlighted central bank gold purchases and expectations of a Fed rate cut as supportive factors.
“We recommend speculative positioning in gold,” the report said, maintaining its forecast for gold to reach $2,700 per ounce by early 2025.
According to Kobeissi Letter, a financial news site, central banks purchased a record 483 tons of gold in the first half of the year, up 5% from the previous record of 460 tons set in the first half of 2023. “In the second quarter of this year, central banks net purchased 183 tons of gold, up 6% from the same period last year, but down 39% from the net purchase of 300 tons in the first quarter,” Kobeissi said in a report.
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