Gold prices drop lower, as U.S dollar picks up from its 2-year low

Gold prices drifted lower on Wednesday morning at Asia’s trading session. This plunge in the price of the yellow metal was triggered by impressive US economic data and the US dollar bouncing back from its 2-year low.

Gold futures dropped by about 0.45% to trade at $1,970 by (5:56 GMT), while the U.S dollar index inched up 0.04% to 92.377.

Prices of gold futures dropped below $1,980, a crucial support level, thanks to the dollar’s recent strengthening, and a better-than-expected US manufacturing data released yesterday, which restored hopes for economic recovery. The ISM manufacturing Purchasing Managers Index (PMI) for August came at 56, better than the expected 54.5 and 54.2 in July.

Stephen Innes, Chief Global Market Strategist at AxiCorp, in a note to Nairametrics, spoke on the seasonality of the yellow metal. He said:

“There is moderately bearish seasonality for gold in September; the metal has gone down about 2% in the month over the last five years on average.

“The pace of gold accumulation via ETF instruments seems to have slowed down slightly over a previous couple of months, while fast-money positioning is probably still relatively elevated long contacts.”

However, it should be noted that the recent impressive U.S economic data doesn’t necessarily change the strategy of the U.S. Federal Reserve. The trend for gold still looks bullish.

What you must know about gold: The precious metal tends to usually rise in value on expectations of lower U.S interest rates, which reduces the opportunity cost of holding non-yielding bullion. Also, it usually rallies up, when the U.S dollar is showing weakness.


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