The price of gold has increased for the second day on Wednesday, as the investors rushed to safe haven assets amid the weakening of the U.S. dollar. The greenback weakened after a report of weaker economic data raised concerns that the Federal Reserve would not increase interest rates in the near-term.
On Monday, the precious metal slumped to a one-week low, dragged by the strong U.S. non-farm payrolls on Friday which triggered higher expectations of a short-term interest rate hike.
However, the yellow metal immediately regained back its strength.
Weak U.S. Data Drags Dollar Lower
The U.S. worker productivity has weakened for the third straight quarter in the spring this year, indicating that corporate profits may extend its downturn and wage growth may continue to be sluggish.
The greenback was unable to gain any support on Tuesday, quickly losing its strength against other major currencies, with the trend continuing during the Asian and European sessions on Wednesday. The trade-weighted U.S. Dollar Index moved 0.50% lower during the day.
As the dollar declined further, the precious metal moved to highs above $1,350 late in U.S. trading. As of 8:24 AM (EDT), the gold is trading at 1,362.70 per ounce, 1.21% higher than its previous closing price.
“If you look at the US Treasury market, those yields are a bit lower, the dollar is off a little bit and then you have some selling off the highs in the S&P 500 … making it a little bit more attractive to hold gold,” said an analyst.
“On the technical charts as well, it’s getting a little bit of a bounce,” the analyst added.
The unexpected decline in U.S. worker productivity may confirm the U.S. Fed’s fears that the economy could slip into a period of sluggish growth, discouraging the Central Bank from raising the country’s interest rates.
“A better tone to equity markets, coupled with the increasing odds of a Fed move later this year suggests that the dollar should likely do better over the second half of the year. The combination of this should constitute a net negative for gold,” an INTL FCStone analyst mentioned in a note.
The precious metal is highly sensitive to rising U.S. interest rates, as higher interest rates attracts investors to a higher-yielding investments such as the dollar, which pressures the gold’s prices downward. The weakening of the U.S. dollar means that the yellow metal may gain more appeal to the investors in the upcoming days.
Among other precious metals, silver moved 0.60 percent higher to US $19.831 an ounce. Platinum went 0.6 percent higher at $1,155.6. Palladium was 0.3 higher at $692.22.
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