Gold at over 2-month trough as dollar rallies amid coronavirus concerns

Gold prices plunged to its lowest level in more than 2-months, weighed down by a robust dollar, as U.S. Federal Reserve officials tried to convince investors they will keep monetary policy easy for years to allow unemployment to fall. Although, uncertainties surrounding further stimulus measures to support a sluggish economic recovery in the United States limited the safe-haven metal's downside.

Spot gold was trading 0.4 percent down at $1,856.63 per ounce by 0705 GMT, extending losses for a fourth straight session. It hit a low of $1848.97 earlier in the session, its lowest since July 22. U.S. gold futures were down 0.4 percent to $1,860.60.

The dollar index held firm near a more than 8-week high against rival currencies, as signs of an economic slowdown in Europe and the United States revived concerns about the fallout from a second wave of COVID-19 infections. Meanwhile, the Federal Reserve’s warned that the U.S. economy needs more fiscal stimulus.

U.S. Federal Reserve Vice Chair Richard Clarida on Wednesday called for more fiscal stimulus, noting that policymakers are not even going to begin thinking about raising interest rates until inflation hits 2 percent. Cleveland Federal Reserve Bank President Loretta Mester echoed Clarida, saying that monetary policy will need to remain accommodative for the next several years and more fiscal stimulus is needed to support the economy.

Both Fed Vice Chair Richard Clarida and Chicago Fed President Charles Evans reiterated that rates will not increase until labor markets recover fully from the economic downturn caused by the coronavirus, and prices hit the Fed’s target.

Data released yesterday showed U.S. business activity slowed in September, with gains at factories offset by a decline at services industries. Flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, slipped to a reading of 54.4 this month from 54.6 in August.

The survey’s services sector flash PMI fell to 54.6 this month from a reading of 55.0 in August, while the flash manufacturing PMI increased to 53.5 this month from 53.1 in August.

The greenback against a basket of currencies traded 0.1 percent up at 94.42, having touched a high of 94.49 earlier, its highest since July 24. The U.S. Treasury yields eased, with the benchmark 10-year note yield trading at 0.664 percent.

Investors now await U.S. weekly jobless claims data, due later in the day, which is expected to show claims declined slightly but remained elevated.