Gold futures settled at a more than six-week high on Friday to score their biggest weekly gain since January as a slump in equities and a drop in the U.S. dollar buoyed the metal’s investment appeal. An increase in the Fed’s interest rate drives investors away from gold and towards assets with a return, as the precious metal bears no interest.
That was the highest close since July 2.
Spot gold hit a peak of $1,168.40 an ounce and was at $1,153.42 at 1200 GMT, little changed from late Thursday and up 3.5 percent on the week.
The preliminary reading of Caixin’s Purchasing Manager’s Index came in at 47.1 this month for China, the worst print since that of 44.8 in March 2009, according to the data by Markit, a financial information services provider that compiled the survey.
The gold prices’ strength now stems from a series of news and events in the world first largest economies, namely “the recent bearish data out of China including the recent currency devaluation, heightening concerns of greater economic issues, and more immediately the fading chances of a Fed lift-off for September“, said Societe Generale head of commodities research for Asia in Singapore, Mark Keenan, talking to Bloomberg.
On Friday, the Shanghai Composite Index SHCOMP, -4.27% fell 1.7% to 3,602.62 and the smaller Shenzhen Composite 399106, -5.39% fell 2% to 2,210.61. Among precious-metal funds, the Market Vectors Gold Miners ETF was down 0.82% to 15.69 while SPDR Gold Shares was up 0.67% to $111.15.
The current rally in gold is likely to last for some time, as the Federal Reserve is unlikely to raise rates before December, particularly because tumbling crude oil prices have erased any inflation risks, says Gnanasekar Thiagarajan, director of Commtrendz Risk Management. West Texas Intermediate for October delivery dropped 2.1% to settle at $40.45 a barrel. The recently signed deal on Iran’s nuclear program loosened sanctions on that country’s oil shipments, which will help keep prices low, Orengo said.
Worries over China’s economy have also spilled over to demand for industrial metals such as copper and aluminum.
Gold had already rebounded this week from July’s 5-1/2 year low, boosted by minutes of the Fed’s last policy meeting, which dented expectations for an imminent rise in US rates.