Gold Inches Up, Dollar Remains Firm

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As dollar rises to its two-week high with strong data coming from U.S. economy, gold prices dropped to $1.281 on Tuesday however this fall was limited by mixed global markets and thus prices inched up on Wednesday. According to data released on Tuesday, ISM Non-Manufacturing PMI was better than expected in February while new home sales increased in December, which was expected to fall in projections. However it is expected that slowdown will continue in the U.S. economy. In the meanwhile, Minneapolis Federal Reserve Chair Neel Kashkari said there is still room in U.S. labor market and it will continue to remain like this till picking up in real wages is seen. On Brexit issue, Bank of England President Mark Carney said, no-deal Brexit will be less damaging than previously expected for the British economy.

Gold prices fell as low as $1.281 after dollar inched up as better than expected economic data was released in the U.S. ISM Non-Manufacturing PMI released on Tuesday was above expectations with 59,7 in February, increasing from January’s 56,7.  New home sales, which was expected to fall, rose by %3,7 in December, performing the best since May 2018. Global markets were mixed on Tuesday, while growth concerns rose with increasing fiscal stimulus and lowered growth projection in China, which limited the fall in gold prices and prices edged higher on Wednesday.

As of 13:58 GMT+3, spot gold was trading at 1,285.31 while dollar index was at 96,92 level. U.S. 10-year Treasury yield edged down to 2.717 and gold-backed ETFs holdings fell to the lowest level since January 10th.

By the way, analysts think that slowdown in the U.S. economy will continue as the boost of tax cut decreases and trade dispute between U.S. and China continues. Andrew Hunter, U.S. Economist at Capital Economics, said growth rate in the first quarter is already going lower than %2 and with higher interest rates and effects of fiscal stimulus fading away, they expect this to continue.

In the meanwhile, Minneapolis Federal Reserve Chair Neel Kashkari said on Tuesday that there is still room for U.S. labor market, citing increasing wages and millions of people joining labor force recently. Increase in wages is the best indicator of situation in labor market, Kashkari said, adding that there will be room to strengthen the U.S. labor market till considerable increase is seen in real wages.

Commenting on Brexit uncertainty, Bank of England President Mark Carney said effects of no-deal Brexit will be less damaging than they previously projected. There has been progress in constructive measures against no-deal Brexit scenario in England, said Carney, adding that British economy will still be still affected badly however the shock will be weaker with measures taken by authorities. In the report published by BoE in November, the central bank projected %8 decrease in GDP in case of no-deal Brexit which would bring the country to the edge of a deep recession, adding that inflation would be higher than %2 target and unemployment rate would likely exceed %7.5.