Gold prices experienced a slight decline on Tuesday after experiencing a surge in the prior session, as markets took into account the possibility of more economic turmoil this year, spurred by a manufacturing slowdown and rising fuel costs.
The price of the precious metal witnessed a resurgence in safe haven demand on Monday, following a string of weak manufacturing readings from major economies, which might signify a potential economic slowdown later this year.
The unexpected production cut by the Organization of Petroleum Exporting Countries and allies (OPEC+) also caught markets off guard and is likely to result in higher fuel prices, potentially leading to higher inflation.
As a result, spot gold fell by 0.2% to $1,980.99 an ounce, while gold futures fell by 0.1% to $1,997.85 an ounce by 21:23 ET (02:23 GMT). Both instruments had rallied over 1% on Monday [2].
The data on manufacturing activity from the United States, the Eurozone, the United Kingdom, and Japan showed that the world’s largest economies remained in contraction through March. This, coupled with a softer-than-expected manufacturing reading from China, raised concerns that global economic growth might weaken in the coming months.
The softer-than-expected data also prompted the markets to question just how much economic headroom the Federal Reserve would have to keep raising interest rates, leading to a slight drop in the dollar in overnight trade.
However, the spike in oil prices caused the markets to start factoring in a higher likelihood of more interest rate hikes by the Federal Reserve in the near-term, particularly if higher fuel costs push up inflation. Focus this week is now on U.S. nonfarm payrolls data, due on Friday, for more cues on the labor market.
In March, gold prices witnessed substantial gains, retaking the $2,000 level following the collapse of several U.S. banks that ramped up fears of more economic turmoil. Although regulatory intervention quelled fears of an immediate collapse, gold has remained relatively well bid in recent weeks.
Other precious metals, including platinum and silver, remained flat or saw a slight decline on Tuesday. Among industrial metals, copper prices experienced a drop due to a worsening outlook for global manufacturing activity, particularly amid signs of cooling growth in major importer China.
Copper futures fell by 0.3% to $4.0415 a pound and were set for a third straight day in the red.
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