Gold futures on Wednesday headed higher as downbeat economic data fed expectations for easier monetary policies by major central banks, a day ahead of a meeting of the European Central Bank.
Europe’s central bank on Thursday is expected to lay the groundwork for an interest rate cut, while the U.S. Federal Reserve is seen cutting key interest rates next week.
Read: It’s the ECB’s turn to take a step toward further easing when it meets Thursday
“The [quantitative-easing] taps look closer to being turned by the week and this weaker run” of global purchasing managers index data will “likely encourage the Fed to deliver an ultra dovish rate cut,” Stephen Innes, managing partner at Vanguard Markets, told MarketWatch. The U.S. central bank has “shifted to more of a risk management model that warrants a heavy dose of stimulus to ward off the contagious effects of this deteriorating global macro environment.”
August gold on Comex GCQ19, +0.06% gained $1.30, or 0.1%, to $1,423 an ounce, though traded off the session’s high of $1,430. Prices fell 0.4% on Tuesday.
Data Wednesday showed that the IHS Markit flash U.S. manufacturing PMI fell to 50.0 in July from 50.6 a month earlier, marking the lowest level since September 2009. The IHS Markit flash U.S. services PMI, meanwhile, rose to 52.2 in July from 51.5.
“The PMI drops are not just an isolated or individual country phenomena,” said Innes. “The U.S. PMI on the cusp of contraction likely has investors wondering what does the Fed know that we didn’t.”
“The Eurozone PMI is a sore spot also, as German manufacturing went even deeper into contraction territory and the ECB’s lower bar to new easing is getting more justified by the day,” he said.
Gold investors also bet on a higher chance of Britain exiting from the European Union without a trade agreement, pushing the metal higher.
Separately, Boris Johnson formally took over as U.K. prime minister Wednesday and assembled a team intended to fulfill his pledge to take Britain out of the European Union, a pledge his predecessor Theresa May failed to do. However, Johnson is expected to take a hard line in pushing the country out without an EU pact in hand, an outcome that threatens to at least briefly roil global markets.
Helping cap some gains for gold were reports that progress was being made between the U.S. and China on their prolonged trade dispute, with parties from both sides slated to meet in Shanghai next week for the first face-to-face talks since May.
“Gold got a boost from rising no-deal Brexit probabilities, which also significantly increases the odds of QE on the continent,” wrote Innes, in a Wednesday research report.
“However, the rally gave way to improved US-China trade news flows and a high degree of investor caution knowing that substantial speculative length has built up above $1,400 and that gold markets reaction function will be asymmetric to the Fed’s post rate cut messaging,” he said.
In other metals dealings, September silver SIU19, +0.81% extended its climb to its highest level in more than a year, rising 9.9 cents, or 0.6%, to $16.575 an ounce, headed for its eighth gain in nine sessions. On Tuesday, gold’s sister metal booked its highest settlement for a most-active contract since June 15, 2018, according to FactSet data.
September copper HGU19, +0.44% was up nearly a penny, or 0.3%, at $2.7085 a pound. October platinum PLV19, +2.07% rose $17, or 2%, to $878.60 an ounce and September palladium PAU19, +1.23% traded at $1,536.40 an ounce, up $17.80, or 1.2%.
Among exchange-traded funds, SPDR Gold Shares GLD, +0.34% added 0.3%, while the iShares Silver Trust SLV, +1.17% rose 1.1%.