Gold Rises Due to China Slowdown and Weak USD

Gold rose on Tuesday as the dollar and global equities dropped on fresh signs of economic weakness in China and uncertainty over the timing of the Federal Reserve’s first interest rate increase in nearly a decade.

Activity in China’s factory sector shrank at its fastest rate in at least three years in August as domestic and export orders tumbled, increasing investor concern that the world’s second-largest economy could be lurching towards a hard landing.

Spot gold was up 0.6 percent at $1,140.51 an ounce by 1203 GMT, while U.S. gold for December delivery was up 0.7 percent at $1,140.30.

The metal posted its biggest weekly drop in five last week, weighed by a steady dollar and strong U.S. economic data, supporting the case for a rate rise as early as this month.

Gold, which is on track for a 4 percent fall this year, would suffer from higher interest rates because they would increase the opportunity cost of holding the metal. Conversely, a delayed rate increase would relieve some selling pressure, if only temporarily.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza