Gold prices hold at 3-week high as dollar, yields dip on weak data

Investing.com-- Gold prices steadied at three-week peaks on Wednesday, aided by a weaker dollar as softer-than-expected U.S. economic data spurred bets that the Federal Reserve will have limited headroom to keep raising rates.

The yellow metal had a strong run-up over the past week, also benefiting from some safe haven demand as traders grew more uncertain over the U.S. economic outlook.

But further gains in gold prices were clouded by the prospect of U.S. rates remaining higher for longer, with a slew of economic readings set to factor into the rate outlook this week.

Spot gold fell 0.1% to $1,936.45 an ounce, while gold futures expiring in December fell 0.1% to $1,963.85 an ounce by 00:33 ET (04:33 GMT). Both instruments shot up by nearly 1% each on Tuesday, and were at their highest levels since early-August.

U.S. data deluge on tap, dollar and yields steady 

The dollar steadied from recent losses on Wednesday, as did Treasury yields. They had both fallen sharply in the prior session tracking weaker-than-expected job openings and consumer confidence data.

Focus is now squarely on more key economic indicators, with a revised reading on second-quarter economic growth due later on Wednesday. Personal consumption expenditures data, the Fed’s preferred inflation gauge, is due on Thursday, while August nonfarm payrolls are due on Friday.

Any signs of cooling in U.S. inflation and labor market activity gives the Fed less impetus to raise interest rates further. But given that the central bank has signaled that U.S. rates will remain higher for longer, gold is expected to see limited relief until the central bank decides to begin trimming rates next year. 

Higher rates push up the opportunity cost of  investing in non-yielding assets- a trade that had battered gold over the past year. 

Copper weakens on economic uncertainty 

Among industrial metals, copper prices fell on Wednesday, unwinding some gains seen this week as the weak U.S. data fueled some concerns over slowing economic activity. 

While weakness in the dollar limited losses in the red metal, it was also dented by uncertainty over major importer China, especially as Beijing showed little signs of unlocking fiscal support for the economy.

Copper futures fell 0.4% to $3.8217 a pound.

Focus is now on key purchasing managers’ index data from China, due on Thursday, for more cues on business activity in the world’s largest copper importer.