As the market entered a new trading month on Tuesday, spot gold performed better as bullish sub-trades continued to break through the key 1980 barrier, reaching as high as $1,989 and approaching the 1990 level.
One of the factors behind gold’s continued rally was undoubtedly the growing negative sentiment toward the DOLLAR, which hit a new intraday low of 91.79 against a basket of currencies against a backdrop of more than two years.
Mr Powell’s comments last week reinforced the dollar’s downward trend. Stimulus measures by the Federal Reserve to offset the economic impact of the coronavirus pandemic have pushed up risky assets and hurt the safe-haven dollar.
“Dollar bears have been the recent winners in the wake of the Fed’s inflation policy changes, which should keep U.S. interest rates near zero for the foreseeable future and keep [the dollar] under pressure,” wrote analysts at Action Economics.
Gold futures ended higher Monday on the back of a weak dollar, but still ended down slightly in August after five straight months of gains.
In general, gold is still seen as a haven in the face of the COVID-19 pandemic. Precious metals gained increasing attention last week after the Us Federal Reserve said it would switch to a policy that targets average inflation, effectively prompting policymakers to end early interest rate rises to prevent inflation. This setting is seen as positive for gold, which is seen as a hedge against rising inflation.
Experts say expectations of low interest rates in the United States and much of the developed world, as well as a weak dollar, have also boosted demand for gold.
“Gold will continue to be one of the best beneficiaries of a weaker dollar and is expected to pass $2,000 again in the coming weeks,” Hussein Sayed, chief market strategist at FXTM, wrote in a report On Monday.
Gold for December delivery rose $3.70, or 0.2 percent, to close at $1,978.60. The ICE Dollar index fell 0.3% amid the gold rally.
Silver was also boosted by hopes of an improvement in economic activity and optimism about a possible cure for the coronavirus. Silver is regarded as both an industrial and precious metal.
China’s official business activity index grew even faster in August, with the non-manufacturing purchasing managers’ index rising to 55.2, up from 54.2 in July.
Based on front-month contracts, gold fell nearly 0.4% in August and silver rose about 18%, According to Dow Jones Market data.
Stephen Innes, chief global market strategist at AxiCorp, said in a market update that investors are “waiting for the pace of improvement in economic growth to slow and the uncertainty of the U.S. election to take center stage as a reason to hold gold and keep shorting the dollar.”
“I suspect this week’s jobs data could be a volatile event,” he added. Us non-farm payrolls data for August are due on Friday.
The U.S. non-farm payrolls report is due at 20:30 Beijing time on Friday, with the market now expecting 1.518 million new jobs created in August, the U.S. unemployment rate to fall to 9.9 percent from 10.2 percent and the average hourly wage rate to 0 percent from 0.2 percent.
Charlie Nedoss, senior market strategist at LaSalle Futures Group in Chicago, said the focus will shift to the U.S. labor market after Powell’s remarks. “We’ve seen an economy that has created nine million jobs over the last two months, but we lost 20 million jobs in March,” he said.
Nedoss added that the weak jobs data could push gold higher on expectations the Fed will pump more liquidity into financial markets.