Gold at 2-week peak as greenback slumps on rate outlook

Gold prices rallied to their highest level in nearly 2-weeks, as the dollar declined to multi-year lows on speculation that U.S. interest rates would stay lower for a longer period after the Federal Reserve’s new policy framework.

Spot gold was trading 0.8 percent higher at $1,984.10 per ounce by 0636 GMT, having hit a high of $1989.90 earlier in the session, its highest since August 19. U.S. gold futures rose 0.7 percent to $1,992.50.

The dollar index plunged to a more than 2-year low against its rivals, as the Fed’s new monetary policy strategy could result in inflation moving slightly higher, stoking bets that U.S. rates will stay lower for longer than other countries.

On Monday, Federal Reserve Vice Chair Richard Clarida expanded on Governor Jerome Powell’s comments from last week, saying that the U.S. central bank’s new approach to monetary policy means a low unemployment rate on its own doesn’t warrant higher interest rates.

Safe-haven assets gained as risk sentiment weakened after the United States said it was establishing a new bilateral economic dialogue with Taiwan, a decision that could escalate tensions further with Beijing as China claims Taiwan as its own territory.

However, investor risk appetite slightly improved after the Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) showed China’s factory activity expanded at the fastest rate in nearly a decade in August, as manufacturers ramped up production to meet rebounding demand. China's Manufacturing PMI rose to 53.1 last month from July’s 52.8, recording the sector’s fourth consecutive month of growth and the biggest rate of expansion since January 2011.

The greenback against a basket of currencies traded 0.3 percent down at 91.86, having touched a low of 91.78 earlier, its lowest since April 2018. The U.S. Treasury yields steadied, with the benchmark 10-year note yield trading at 0.713 percent.

This week the U.S. data calendar is full of important releases on manufacturing, durable goods, and employment. Later in the day the U.S. manufacturing PMI is expected to show that activity continued to expand in August.