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Gold snaps six days of declines on weaker dollar, U.S. data, ECB meeting in focus

Gold rebounded from Tuesdays three-week low as the U.S. dollar lost positions against the euro following upbeat Euro zone service sector data. Market players however refrained from taking big positions ahead of ECBs policy meeting on Thursday and prior to the release of key U.S. economic data. Silver, platinum and palladium also rose..

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in December traded at $1 318.20 per troy ounce at 9:04 GMT, up 0.77% on the day. Prices shifted in a days range between $1 320.00 and $1 309.00, near Tuesdays three-week low. The precious metal lost 0.2% yesterday but rose back to positive weekly territory after Wednesdays rebound.

Gold regained some positions after upbeat non-manufacturing PMI data from Europes leading nations strengthened the euro and pressured down the U.S. dollar. Spains services PMI defied analysts projections for a drop to 48.1 from Septembers 49.0 and surged to 49.6, nearing the neutral level. Italys service sector growth slowed from Septembers 52.7 but was still in the expansion zone at 50.5. Frances non-manufacturing PMI surged to 50.9, outperforming projections to remain unchanged at 50.2, followed by improvement in Germany, whose service sector activity expanded to 52.9, beating expectations to remain flat at 52.3. The Euro zones Final Services PMI also surprised positively and rose to 51.6, exceeding expectations for expanding at the same pace as in September at 50.9.

Market sentiment however remained dampened on expectations the European Central Bank might decide to cut interest rates at its policy meeting on Thursday to safeguard the economic recovery of the single-currency bloc after unemployment rate remained at record-high levels. The European Commission trimmed its forecast for the Euro zones growth as unemployment in the region was at unacceptably high levels. A weakening of the euro boosts the U.S. dollar as its main counterpart, pressuring down dollar-denominated commodities.

Gold was pressured on Tuesday after he Institute for Supply Management reported that its Non-Manufacturing PMI rose to 55.4 in October, confounding analysts’ projections to slow to 54.0 from September’s reading of 54.4. Despite last month’s expansion being below August’s 2-1/2-year low, the upbeat reading fueled speculations that the U.S. economy is faring well despite the political wrangling in Washington we saw last month.

The U.S. dollar index, which measures the greenbacks performance against a basket of six major counterparts, traded at 80.63 at 8:51 GMT, down 0.21% on the day. Prices held in range between 80.80 and 80.57. The December contract rose by nearly 0.2% on Tuesday but extended its weekly decline to over 0.2% on Wednesday.

Yesterday’s data added to ISM’s report from last week which showed manufacturing activity in the world’s biggest economy rose at the fastest pace in two and a half years in October. The ISM Manufacturing index surged to 56.4, the highest since April 2011, defying analysts’ projection for a drop to 55.0 from September’s reading of 56.2.

Mark To, head of research at Hong Kongs Wing Fung Financial Group, commented for CNBC: “The overall sentiment is that the economic recovery is steady but it has lost some steam. Investors are cautious, so I think gold will move towards $1,300 and stay around that for consolidation.” To also added the Federal Reserve will not begin scaling back its bond purchases any soon as unemployment remains high.

Market players eyed the upcoming key U.S. GDP and unemployment data on Thursday and Friday to assess when the Fed will most likely commence trimming its monetary easing program. On Thursday, the preliminary reading of the U.S. Q3 GDP growth may show a smaller expansion compared to the preceding three months. Personal Consumption Expenditures probably fell in the third quarter, while core consumer spending is expected to have advanced.

On Friday, October’s non-farm payrolls are projected to have further eased, while the unemployment rate likely inched up to 7.3%, according to analysts’ expectations. Personal income and personal spending are projected to have risen at a slower pace from a month ago. The preliminary reading of the Thomson Reuters/University of Michigan Consumer Sentiment Index may show a rebound to 74.5 in November, up from 73.2 in October.

A better than expected non-farm payrolls report however will fuel speculations the Federal Reserve may commence scaling back its monthly bond purchases earlier than expected. Even if readings match expectations however, the central bank is broadly expected to trim its monetary easing program early next year, most likely in March, which leaves market players bearish in the mid- and long-term.

Elsewhere on the precious metals market, silver futures for settlement in December rose by 1.42% to $21.943 per troy ounce by 8:55 GMT and held in range between days high and low of $21.993 and $21.623. Platinum for delivery in January traded at $1 462.85 an ounce, up 0.89% on the day. Prices rose to a one-week high of $1 462.90 an ounce, while days low stood at $1 449.85. Palladium December futures surged 1.44% to $761.10 per troy ounce by 8:59 GMT. The metal jumped to a session high of $763.30 an ounce, the strongest level since August 18, rebounding from days low of 749.00.

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