Gold prices closed at their highest level in nearly three weeks Tuesday, lifted by a weaker dollar and expectations that the Federal Reserve is unlikely to raise interest rates this month after a series of soft data releases.
Gold for December delivery settled up 2.1% at $1,354 a troy ounce on the Comex division of the New York Mercantile Exchange, the highest level since Aug. 18. It was the biggest one-session rally for gold prices since June 24.
A gauge of U.S. service-sector activity sank in August to its lowest level in more than six years, signaling slowing growth in key sectors of the U.S. economy ahead of the coming policy meeting of Federal Reserve officials.
The data miss helped bolster the case for the Fed to leave interest rates unchanged at its Sept. 20-21 meeting. It comes on the heels of weaker-than-expected manufacturing data and employment numbers released last week.
Expectations of low rates for longer are good for gold, which pays its holders nothing and struggles to compete with yield-bearing investments when borrowing costs rise.
Prices also received a boost from a weaker dollar. The Wall Street Journal Dollar Index, which measures the U.S. currency against 16 others, was recently down 1.1% at 85.77. Gold is priced in dollars, and become more affordable to foreign investors when the U.S. currency declines.
The gold market “is likely to remain firm for the next few weeks,” said James Steel, a strategist at HSBC. However, he said, “the market does believe that rate rises are coming eventually, and that there will be price resistance as we move higher.”
Bets on federal-funds futures, a popular vehicle for expressing views on the central bank’s policy outlook, showed investors assigned a 15% likelihood of the Fed raising rates this month, down from 21% the previous day, according to CME Group data.