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Gold falls from 2-week peak on robust U.S. data

· Gold prices fell from a near two-week high scaled earlier on Tuesday, as the dollar rebounded and better-than-expected U.S. manufacturing data improved hopes about a U.S. economic recovery.

· Spot gold was steady at $1,970.55 per ounce by 2:23 p.m. EDT (1823 GMT), after hitting its highest since Aug. 19 at $1,991.91.

· U.S. gold futures settled mostly flat at 1,978.90.

· “The manufacturing number came out much better than expected and that’s what caused gold to pare back its gains, and (also) gave little strength to the dollar,” Bob Haberkorn, senior market strategist at RJO Futures said.

“(The better data) doesn’t necessarily change the picture for the U.S. Federal Reserve. The trend (in gold) is still higher,” Haberkorn, however added.

· The U.S. dollar was up 0.2% against key rivals, recovering from a more than two-year low hit earlier in the day.

· Also, weighing on prices, global stocks gained after U.S. manufacturing activity accelerated to its highest level in nearly two years in August, the Institute for Supply Management (ISM) data showed.

· The U.S. central bank last week announced an average inflation target policy, which will allow rates to stay low even if inflation rises a bit in the future.

· Gold should remain supported in this environment of firming inflation expectations and a lower U.S. dollar, said Daniel Ghali, commodity strategist at TD Securities.

· Bullion, which has risen about 30% so far this year, is seen as a hedge against inflation and currency debasement, while lower interest rates reduce the opportunity cost of holding non-yielding bullion.

· Elsewhere, silver was up 0.2% at $28.27 per ounce, after hitting its highest since Aug. 11.

Platinum rose 1.4% to $942.09 and palladium climbed 1.5% to $2,277.11.

· The Fed could be locked into zero rates for five years, or even longer

Interest rates near zero likely will stay in place not for months but years as the Federal Reserve seeks to reengineer an economy characterized by low inflation and an uneven labor market.

Wall Street economists see a period of several years before the Fed is able to hike again.

Goldman Sachs, for instance, estimates policy “liftoff” that would come “around early 2025,” depending on the metrics the Fed wants to use. One of the questions would be how far back the Fed would want to calculate to come to an “average” that would then be used to clear the way for policy normalization once inflation took hold.

Others on Wall Street see a five-year time frame as realistic as well.

Tony Dwyer, an analyst Canaccord Genuity Capital Markets, said the Fed will combine low rates with a prolonged campaign of quantitative easing, the bond-buying program that has helped add nearly $3 trillion to the central bank balance sheet since the pandemic began.

“Our take is their statement means the Fed is going to remain historically accommodative for a very long time and the economic cycle has a very long way to go,” Dwyer said in a note. “The Fed has now publicly stated they won’t be raising rates even if inflation begins to pick up, and that a strong economy accompanied by full employment will not cause them to take preemptive action to tighten due to inflation fear.”

Dwyer sees “a zero-interest-rate policy and open-ended quantitative easing (QE) for the next five years,” as government debt piles up and the Fed is called on to underwrite trillions in stimulus spending.

“We believe the new monetary policy initiative announced by Fed Chair Powell at Jackson Hole, coupled with the synchronized global economic recovery, suggests we are in the very early stages of a new economic and market cycle that should last years,” he said.

· U.S. economy needs more Fed stimulus 'in coming months,' Brainard says

The Federal Reserve “in coming months” will need to roll out new efforts to help the economy overcome the impact of the coronavirus pandemic and live up to the U.S. central bank’s new promise of stronger job growth and higher inflation, Fed Governor Lael Brainard said on Tuesday.

· U.S. manufacturing activity strongest in nearly two years in August

U.S. manufacturing activity accelerated to a nearly two-year high in August amid a surge in new orders, but employment continued to lag, supporting views that the labor market recovery was losing momentum.

The Institute for Supply Management (ISM) said on Tuesday its index of national factory activity increased to a reading of 56.0 last month from 54.2 in July. That was the highest level since November 2018 and marked three straight months of growth.

The ISM’s forward-looking new orders sub-index increased to a reading of 67.6 in August, the strongest since January 2004, from 61.5 in July. Fifteen industries reported an increase in demand.

· U.S. employment projected to increase six million from 2019 to 2029: Labor Department

U.S. employment is projected to increase by 6 million jobs this decade, with the annual growth rate sharply slower than during the economy’s recovery from the Great Recession, according to a government report on Tuesday.

The coronavirus crisis delivered the biggest economic shock since the Great Depression, with 22 million jobs lost. Only 9.3 million jobs had been recovered by July.

“The 2019-29 projections were finalized in the spring of 2020 when there was still significant uncertainty about the duration and impacts of the pandemic,” the BLS said.

· U.S. Treasury Secretary Mnuchin says he will call Speaker Pelosi about coronavirus aid talks Tuesday

U.S. Treasury Secretary Steven Mnuchin said Tuesday he would telephone House Speaker Nancy Pelosi about stalled coronavirus aid negotiations later on Tuesday, once a congressional hearing where he was testifying finished.

“Can I tell her that you suggested I call her right after the hearing?” Mnuchin asked Democratic Representative Maxine Waters, who had pressed him to phone Pelosi about the stalled coronavirus aid talks between Congress and the Trump administration. Waters agreed. “Done,” replied Mnuchin. “I will call her right after the hearing.”

· CORONAVIRUS UPDATES:

  

Global cases: More than 25.88 million

Global deaths: At least 860,270

U.S. cases: More than 6.25 million

U.S. deaths: At least 188,874

· Mexico passes 600,000 coronavirus infections, deaths reach 65,241

Mexico’s health ministry on Tuesday reported 6,476 new confirmed cases of coronavirus infections and 827 additional fatalities, bringing the total in the country to 606,036 cases and 65,241 deaths.

· Europe sees sharp rise in the number of new coronavirus cases, as Spain and Russia infections spike

Europe has recorded a sharp rise in the number of new Covid-19 infections in recent weeks, reflecting an alarming trend as the World Health Organization warns “no country can just pretend the pandemic is over.”

The number of new coronavirus cases reported across the region increased by 5.6% to a total of just over 4 million cases in the week ending August 23, according to data compiled by the WHO.

Those new cases marked a 6% jump compared to the previous week and an increase of 72% compared to the week ending June 7, when the lowest number of cases per week were reported.

· ‘Shocker’ euro zone data raises questions about what the ECB will do next

The European Central Bank will have to take further action to contain the impact of the coronavirus pandemic on the euro zone, analysts said Tuesday, after inflation turned negative in the region.

A flash reading Tuesday showed that annual headline inflation — which is closely monitored by the ECB — is expected to come in at -0.2% in August, down from 0.4% in July.

In addition, core inflation — which strips off volatile items such as energy prices and therefore gives a more stable picture of prices — sank to 0.4% year on year in August from 1.2% in July. This was the lowest reading since records started in 2001.

The ECB had already told markets in June that it was expecting low inflation figures for the next two years. It estimated then, under its worst-case scenario, that headline inflation would slowly rise from 0.2% in 2020 to0.9% in 2022.

· Brazil economy back to 2009 size after record 9.7% slump in second quarter

Brazil’s economy shrank in the second quarter by the most on record as anti-coronavirus lockdown measures slammed activity in almost every sector, dragging Latin America’s largest economy back to the size it was in2009.

The pandemic triggered a 9.7% fall in gross domestic product from the prior quarter, government statistics agency IBGE said on Tuesday, and an 11.4% decline compared with the same period last year.

· South Korea August inflation hits five-month high as fresh food prices soar

South Korea’s annual inflation in August accelerated to its fastest in five months as the longest monsoon on record

pushed up fresh food prices, data showed on Wednesday, though it remained subdued on weak domestic demand amid the coronavirus pandemic.

The consumer price index (CPI) jumped 0.7% from a year earlier in August, Statistics Korea data showed, versus a 0.3% rise in July and beating a median 0.4% rise tipped in a Reuters survey.

· Thailand's new finance minister resigns amid economic crisis

Thailand’s recently appointed finance minister, Predee Daochai, has resigned as the government struggles to pull Southeast Asia’s second-largest economy out of a slump caused by the coronavirus pandemic.

The banking veteran took office just last month as Prime Minister Prayuth Chan-ocha shook up his economic team to address the drop in demand and the devastation suffered by the country’s vital tourist industry.

· Trump visits Kenosha, not to urge racial healing but to back police

President Donald Trump defied requests to stay away and visited Kenosha, Wisconsin, on Tuesday, not to urge racial healing after a white officer shot a Black man in the back but to express support for law enforcement in a city rocked by civil unrest.

With the United States polarized over issues of racial injustice and police use of force, Trump is appealing to his base of white supporters with a “law and order” message as opinion polls show him cutting into the lead of his Democratic rival, former vice president Joe Biden.