Gold prices edged higher on Friday, recovering from a 10-day low hit in the previous session, as the dollar retreated from a near six-month high. The yellow metal also found some support from weak economic data from Japan and rising tensions between the U.S. and China.
Dollar retreats after strong U.S. data
The dollar index, which measures the greenback against a basket of six major currencies, fell 0.2% on Friday, after reaching its highest level since March on Thursday. The dollar was boosted by strong U.S. labor market and inflation data earlier this week, which raised expectations that the Federal Reserve may start tapering its stimulus sooner than expected.
However, some profit-taking in the dollar helped gold prices to bounce back from their lowest level since August 26. Gold is sensitive to the movements of the dollar, as a stronger greenback makes the metal more expensive for holders of other currencies.
Weak Japan data, U.S.-China tensions support safe-haven demand
Gold also benefited from some safe-haven demand, as weak economic data from Japan and rising tensions between the U.S. and China weighed on the market sentiment.
Japan’s gross domestic product (GDP) grew at an annualized rate of 1.9% in the second quarter, lower than the preliminary estimate of 2.3%, according to official data released on Friday. The revision reflected weaker consumer spending and capital expenditure amid the coronavirus pandemic.
Meanwhile, the relations between the U.S. and China deteriorated further, as reports suggested that China asked its government officials to stop using Apple’s iPhone and switch to Huawei devices. This came after a U.S. judge blocked a ban on Huawei’s equipment imposed by the Trump administration.
The U.S. also accused China of “coercive and unfair” trade practices in a report submitted to the World Trade Organization (WTO) on Thursday. The report said that China’s state-led economic model posed a serious threat to the global trading system.
Gold prices still headed for weekly loss
Despite the recovery on Friday, gold prices were still on track for a weekly loss of about 0.7%, as the prospects of higher U.S. interest rates and a resilient U.S. economy dimmed the appeal of the non-yielding metal.
The Fed is widely expected to keep its benchmark interest rate unchanged at its policy meeting later this month, but it may signal its plans to start reducing its $120 billion monthly bond purchases in the coming months.
Higher interest rates increase the opportunity cost of holding gold, while a stronger economy reduces the need for safe-haven assets.
Copper falls on China woes
Among other metals, copper futures fell 0.4% to $3.7453 a pound on Friday, extending their losses for the week amid continued worries over China’s economic outlook.
China is the world’s largest consumer of copper, accounting for about half of the global demand. However, recent data showed that China’s copper imports fell 5% in August from July, indicating a slowdown in industrial activity and demand for the metal.
China’s manufacturing sector also contracted in August for the first time since April 2020, according to a private survey released earlier this week. The survey also showed that input costs rose at their fastest pace in more than 13 years, due to higher raw material prices and supply chain disruptions.
Investors are now looking for more stimulus measures from Beijing to support its economy, but China has so far adopted a cautious approach to easing its monetary and fiscal policies.