By Barani Krishnan
Investing.com - Gloom for the economy is a boom for safe havens. A 10-year-low in a reading of U.S. manufacturing activity sent investors flocking back to the safety of gold on Tuesday, just after they let the yellow metal flounder to two-month lows.
U.S. gold futures for December delivery settled up $16.10, or 1%, at $1,489 per ounce on the Comex division of the New York Mercantile Exchange.
Spot gold, reflective of trades in bullion, was up $8.17, or 0.6%, at $1,480.74 by 2:22 PM ET (18:22 GMT).
The rebound came after the Institute of Supply Management’s manufacturing PMI posted its lowest reading in a decade, falling to 47.8 for September and disappointing consensus forecasts of a rebound above 50.
The ISM reading led to broad risk aversion on Wall Street and a rush into safe havens as it "points to further weakening in manufacturing & industrial output going into 2020," tweeted Greg Daco, U.S. economist for Oxford Economics
The figures suggest the U.S. is failing to avoid being sucked into a global slowdown that has been widely blamed on the trade dispute between the U.S. and China, and on fears surrounding Brexit. The latter flared again as U.K. Prime Minister Boris Johnson's plans for striking a last-minute deal with the EU to avoid a disorderly rupture were met with skepticism in Brussels and elsewhere.
Two-Year Treasury yields, a rough proxy for short-term interest-rate expectations, fell 10 basis points on the news to 1.55%, their lowest in more than three weeks. Lower bond yields are generally supportive for gold prices, since it improves the relative return calculation for the yellow metal.
Gold could particularly benefit from the falling yields as the Federal Reserve might be prompted to cut interest rates for a third time this year in October, after two modest cuts of a quarter point each in July and September.
Some analysts said speculation of further Fed easing could lift gold in coming days, though a few were of the opinion that after gold futures’ slump to two-month lows of $1,470.65 on Monday, a settlement above $1,492 was required to put the market back in bullish mode.
Both futures and spot prices of gold had held steadily above the key bullish level of $1,500 until a breakdown in the yellow metal’s technicals last week. Since then, futures have lost almost $80 from six-year highs of $1,565 on August 26.
“I still think gold is headed lower unless it gets to close above $1,492, and we missed that opportunity today,” Eric Scoles, precious metals strategist at RJO Futures in Chicago said, referring to the slide in futures after an intraday high at 1,493.25.
Others analysts at TD Securities in Toronto are, however, certain that gold is on its way back up.
“The combination of some 75 technical analysis trading signals suggests that 43% of signals are still tilted towards the long side in gold. In fact, chart signals in gold present the most compelling case in a cross-asset basket of securities, with the yellow metal holding the crown for the highest absolute percentage of signals pointing long on a 60 (day) moving average basis,” TD Securities said in a note Tuesday.
“This suggests that a marginal chart signal prompted extremely skewed positioning to liquidate some length, but our positioning analytics suggest that this move is more likely to be tied to a minor shakeout in length than to a major change in positioning,” it added.