Gold fell to its 2-month low, pressured by US dollar as dollar increased to its 2-year high due to appeal of US assets however the fall is not expected to last long as deterioration in global economic conditions and geopolitical tensions keep supporting yellow metal. As central banks ease their monetary policies all around the world, Reserve Bank of Australia cut the rates to record low level today. On economic data side, data released today showed weakness persisted in manufacturing sector in major economies in September. In Japan, contraction in manufacturing sector deepened while in Eurozone’s manufacturing continued to contract with weakening German manufacturing. In the UK, manufacturing rose slightly due to stockpiling ahead of Brexit however it stayed below 50 that separates contraction from expansion.
Gold prices fell to its two-month low as dollar got stronger due to US economy still performing better than other major economies in a deteriorating global conditions however global economic slowdown and geopolitical uncertainties are expected to keep supporting yellow metal. As trade optimism also weighed on the precious metal, price volatility is expected to persist ahead of trade talks next week.
As of 14:33 GMT+3, spot gold was trading at $1,469.76 an ounce while dollar index was at 99.44. US 10-year Treasury yield was up to 1.727.
CMC Markets chief market strategist Michael McCarthy said on Reuters that potential for dollar to increase further and optimism regarding trade deal weighed on gold prices. Possible positive developments on trade front are expected to weigh further on the precious metal.
As central banks ease their monetary policies, Reserve Bank of Australia cut the rates today to its all time low. According to statement, the cash rate declined by 25 basis point to 0.75% as the bank signalled there could be more easing in the future if needed. The bank said, the rates were cut to increase employment, wage growth and provide confidence that inflation will be consistent with its medium-term target while adding there was still capacity in the economy and that rate cut would likely provide support for it.
On economic data side, data released today showed manufacturing sector continued to weaken in September. In Japan, contraction in manufacturing sector deepened and stayed below 50 for the fifth consecutive month. The data showed global slowdown continued to weigh on manufacturing sector as manufacturing PMI fell to 48.9 from 49.3 and tax hike in October is expected to deepen economic slowdown in Japan.
In Eurozone, contraction in manufacturing sector deepened in September with weakening German manufacturing. According to the data, Eurozone manufacturing PMI fell to 45.7 from 47 and it was stated that the situation is now worse and even worse could be ahead. In bloc’s largest economy Germany, manufacturing PMI fell to 41.7 from 43.5, indicating deepening contraction and the worst performance since June 2009 while it was stated that this was mostly due to falling new orders. Moreover, manufacturing employment fell and this may further weigh on considerably resilient consumer sentiment while growth forecasts are expected to be downgraded by German economic institutes on Wednesday.
In the UK, contraction slowed down in manufacturing as some firms increased their production for stockpiling ahead of Brexit. According to the data, manufacturing sector contracted for the fifth consecutive month even though manufacturing PMI increased to 48.3 from 47.4. As Brexit uncertainty continues to weigh on the economy, there was similar increase in activity ahead of first Brexit date, March 29, and thus, the economy had performed strongly in the Q1.