Gold fell more than 1.5% on Wednesday as the dollar strengthened. It means that happened after a strong rebound in the US manufacturing sector. That thing fueled hopes of a speedy recovery in the coronavirus-hit economy. This commodity is now becoming attention.
The coronavirus pandemic is leaving many sectors ‘paralyzed’. It also happened in most commodities and currencies in the world market. However, a light of hope seems to appear after Powell gave his important speech several times ago.
The spot of gold fell 1.6% to $ 1,939.66 an ounce. US gold futures were down 1.7% at 1,944.70. It shows the positive thing since that commodity will become reachable. It means that the economy wheel can be played back.
What is the Main Factor?
It cannot be denied that the main factor is a stronger dollar in the market lately. Gold is moving in a completely opposite direction to the dollar today. It was said by Edward Meir, an analyst at ED&F Man Capital Markets.
He was adding that a good US factory order number for July also weighed on the metal. The dollar rose 0.5%, further recovering from a more than two-year low of the last session. New orders goods made by the US were increasing amazingly.
Meanwhile, US manufacturing data on Tuesday showed activity accelerated to near a two-year high in August. It was raising optimism about a steady recovery. US private payrolls, on the other hand, increased less than expected in August, suggesting a slowing labor market recovery.
Gold Must Continue to Have Support
As far as the economy is concerned, you're going to get a little bit of upside in the economic data. However, you won't get any significant changes in any economy, not for a long time. It was said by Phillip Streible, the chief market strategist at Blue Line Futures.
The investors are now focused on Thursday's preliminary US jobless claims report and Friday's non-farm payrolls data. Gold should remain supported amid continued concerns from the pandemic and a lower interest rate environment. This support is a crucial factor to have.
It just like what was said by the managing director at RBC Wealth Management. Many analysts also expect that the trend of gold can last for a long time. Based on the data, the safe-haven metal has gained about 27% so far this year.
Meanwhile, the USD/JPY has Recovered
USD/JPY is currently trading above 1060 and higher today by around 0.28% as dollar bulls are taking back control. The US dollar has recovered since the start of this week's ISM manufacturing shock that signaled the US economic recovery is on the right track.
US manufacturing expanded in August at the fastest pace since late 2018, with the ISM manufacturing index rising to 65 from 54.2 in July. The data helped the US dollar to fall after the Federal Reserve's announcement or speech announced last week.
It intends to let inflation exceed its 2% target and the unemployment rate low before seriously considering raising interest rates. Meanwhile, the yen currency was strengthened earlier in the week on the market reaction to news of Japanese PM Abe's resignation.
The ‘Abenomics’ Effect
The market is selling Japanese equities and buying JPY. It was looking for clues on how much Abenomics will be removed after the Abe era ends. Looking ahead for this week, investors will concern more about the US Nonfarm Payrolls to monitor the USD.
Considering the yen's safe-haven appeal, the yen may be the main beneficiary of the additional USD weakness. At the start of the week, the outlook for the pair was not bullish. It was given the market's willingness to pull out of the dollar.
The analysis above is considering a bearish USD environment. However, the tables are subject to change in this case. On the other side, the reduced risk should be applied at the uncertain timing leading up to the US jobs report.
