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Wednesday, December 1, 2021

Gold firms as US data hurts dollar, caution over China lingers

Gold firms as US data hurts dollar, caution over China lingersLONDON: Gold firmed on Monday, building on its biggest weekly rise in three months, as weaker than expected U.S. data weighed on the dollar and uncertainty lingered over the implications of China’s yuan devaluation.

Gold rallied to its highest since mid-July last week after Beijing’s mini-devaluation of the yuanm, as analysts speculated that a weakening Chinese currency could prompt the Federal Reserve to postpone an expected rise in U.S. interest rates.

Spot gold was up 0.5 percent at $ 1,119.33 an ounce by 1401 GMT, while U.S. gold futures for December delivery were up $ 5.60 an ounce at $ 1,118.30.

Expectations for a rise in interest rates this year, which would lift the opportunity cost of holding gold while boosting the dollar, pushed the metal to a 5-1/2 year low of $ 1,077 last month.

A rise will be dependent on the strength of U.S. data. The dollar retreated and gold strengthened after a report on Monday showed manufacturing activity in New York state plunged to its weakest in August since 2009.

“The likelihood of a September hike has dropped to roughly 40 percent from almost 50 percent in the morning,” Commerzbank analyst Carsten Frissch said. “We expect gold to remain capped before the first rate hike, which we expect for September. Not too far after the first rate hike, gold should start to rise.”

Minutes from the Fed’s July 28-29 meeting on Wednesday will offer clues about its plan to boost rates for the first time since 2006.

Relief over stability in China’s yuan exchange rate helped European stocks to bounce back from their worst week in six, though concerns over the implications continued to support gold.

“It was unclear what the Fed was going to do with rates even before this, given the unpredictability of the U.S. data. Now there is even more uncertainty,” Societe Generale analyst Robin Bhar said. “What’s critical for gold is whether we get any more safe-haven bids.”

A filing showed on Friday that hedge fund Paulson & Co cut its stake in the world’s biggest gold-backed exchange-traded fund in the second quarter of 2015.

Hedge funds and money managers cut their net short position in COMEX gold contracts in the week to Aug. 11, but short positions remain “crowded”, Barclays Capital said in a note.

Spot silver was up 0.7 percent at $ 15.31 an ounce, platinum slipped by 0.2 percent to $ 986.75 and palladium was down 1.3 percent at $ 607.75.

Copyright Reuters, 2015

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