Gold futures slide below $2,000, copper sinks as dollar gains

August 2, 2023 5:11 AM EDT -- Gold prices moved little on Wednesday after losses in the prior session saw futures lose a key bullish level, while strength in the dollar continued to weigh on broader metal prices.

Copper prices also steadied on Wednesday after losing key levels in the prior session, coming under pressure from a stronger dollar and a barrage of weak manufacturing data from across the globe.

But some signs of recovery in the U.S. manufacturing sector and construction spending boosted the dollar as markets feared that resilience in the U.S. economy will give the Fed enough headroom to keep raising interest rates.

This notion weighed on gold and most other metal prices, which stand to lose in a higher rate environment.

Spot gold steadied at $1,949.88 an ounce, while gold futures expiring in December were flat at $1,986.35 an ounce by 20:23 ET (00:23 GMT). Both instruments slid between 0.6% and 1% on Tuesday, with gold futures also losing the key $2,000 an ounce level.

Dollar strong, Fitch rating cut has little impact

Strength in the dollar was also driven by anxiety ahead of key U.S. nonfarm payrolls data on Friday, which kept traders clear of non-yielding assets such as gold.

Any signs of resilience in the labor market give the Federal Reserve more impetus to keep raising interest rates, which bodes poorly for gold. Analysts expect payrolls to have eased slightly in July, staying near relatively high levels.

The dollar trimmed some gains after ratings agency Fitch cut its U.S. sovereign rating to AA+ from AAA. But gold saw little safe haven demand after the move, with analysts at Goldman Sachs (NYSE: GS) stating that the cut did not represent new fiscal information, and that it would have little direct impact on financial markets.

The outlook for the yellow metal remains muddled, especially with U.S. rates set to remain higher for longer this year. While gold is expected to benefit from an eventual rate cut by the Fed next year, it is expected to see limited support in the near term.

Copper sinks below $4 amid global manufacturing slowdown

Copper prices fell slightly on Wednesday after steep losses in the prior session, as a string of indicators released this week pointed to a manufacturing slowdown in most major economies.

Weak data from China was a particular pain point for copper, as manufacturing activity in the world’s largest copper importer shrank further in July. While the country has outlined more policies to help support the economy, markets appeared to be unconvinced.

Copper futures fell 0.1% to $3.9038 a pound, after tumbling 2.6% in the prior session.

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