Gold prices held steady on Tuesday following modest gains in the previous session, as the dollar weakened in response to disappointing US service sector data. This contributed to growing speculations about a cooling trend in the world’s largest economy.
After reaching a two-month low, the price of gold rebounded when Monday’s data revealed sluggish growth in the US service sector for May. The prolonged surge in this sector had come to a halt as the labor market lost momentum.
The lackluster data resulted in some losses for the dollar, retracting it from the nearly 11-week highs it recently achieved. This proved beneficial for most metal markets, particularly for safe-haven assets like gold.
As of 20:44 ET (00:44 GMT), spot gold remained unchanged at $1,961.16 per ounce, while gold futures increased by 0.2% to reach $1,977.45 per ounce. Both instruments experienced over 0.6% gains on Monday following the release of the US data.
Despite the recent upturn, gold’s trading range remained largely stagnant as investors adopted a cautious stance ahead of the upcoming Federal Reserve interest rate decision next week. Traders are divided on whether the central bank will raise or maintain interest rates, as conflicting signals have emerged over the past week.
Although inflation and labor market data have surpassed expectations, several Fed officials have urged a pause in the rate hike cycle, advocating for a reassessment of the monetary policy tightening carried out over the past year.
Irrespective of the Fed’s decision next week, it is widely anticipated that US interest rates will remain elevated throughout the year. This expectation is likely to hinder substantial gains in metal prices, given that higher interest rates increase the opportunity cost of holding non-yielding assets like gold.
It is possible that gold may witness increased demand later this year, particularly if US economic conditions deteriorate.
The weakened dollar facilitated a recovery in copper prices, following a six-month low reached last week. However, sentiment towards the red metal remained cautious, awaiting further economic indicators from major importer China, which are expected to be released this week.
On Tuesday, copper futures declined by 0.1% to settle at $3.7592 per pound, following a 1.2% increase in the previous session.
This week’s focus is centered on Chinese inflation and trade data, with the latter expected to shed light on commodity demand in the country as the post-COVID economic recovery loses momentum.
Throughout May, a series of disappointing economic reports from China exerted downward pressure on copper prices. Additionally, soft manufacturing figures from the United States and the Eurozone dampened demand for the red metal, which would suffer in the event of a significant recession this year.
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