Gold futures were higher in North American trade on Monday, adding to overnight gains, as weaker-than-expected U.S. manufacturing data underlined expectations that the Federal Reserve would keep interest rates lower for longer.
The Federal Reserve Bank of New York said that its general business conditions index fell to -9.0 this month from a reading of 9.6 in April. Analysts had expected the index to decline to 6.5 in May.
The new orders and shipments indexes also fell below zero, pointing to a decline in both orders and shipments. Survey results indicated that inventory levels were lower and delivery times shorter.
On the index, a reading above 0.0 indicates improving conditions, below indicates worsening conditions.
The downbeat data makes it less likely that the Federal Reserve will be able to follow through on its projected two interest rate increases this year.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.2% at 94.41, after climbing to 94.84 on Friday, the most since April 25.
A weaker dollar boosts demand for raw materials as an alternative investment and makes dollar-priced commodities cheaper for holders of other currencies.
Gold for June delivery on the Comex division of the New York Mercantile Exchange rose by as much as 1.3% to a daily peak of 1,289.05 a troy ounce, the most since May 9, before giving back some gains to trade at $1,288.75 by 12:44GMT, or 8:44AM ET, up $16.05, or 1.26%.
On Friday, gold inched up $1.50, or 0.12%, as traders reassessed their expectations for the timing of the next U.S. rate hike following the release of better than expected U.S. retail sales and consumer sentiment data.
The upbeat data suggested the economy was regaining momentum after growth almost stalled in the first quarter, bolstering the view that the Federal Reserve is still on track to raise rates before the end of the year.
Prices of the yellow metal are still up nearly 19% so far this year amid indications the Fed will take a slow and cautious approach to raising interest rates this year.
Gold is sensitive to moves in U.S. rates, as a rise would lift the opportunity cost of holding non-yielding assets such as bullion. A gradual path to higher rates is seen as less of a threat to gold prices than a swift series of increases.
In the week ahead, market players will be turning their attention to Wednesday’s minutes of the Federal Reserve’s April 26-27 policy meeting for fresh clues on the timing of the next U.S. rate hike.
U.S. inflation data on Tuesday will also be in focus, as investors attempt to gauge if the world’s largest economy is strong enough to withstand further rate hikes in 2016.
Elsewhere on the Comex, silver futures for July delivery climbed 26.8 cents, or 1.56%, to trade at $17.41 a troy ounce during morning hours in New York, while copper futures tacked on 0.7 cents, or 0.34%, to $2.081 a pound.
Weak economic data out of China released over the weekend added to concerns over the health of the world’s second largest economy.
Industrial production rose at an annualized rate of 6.0% in April, below expectations for a 6.5% increase and slowing from a gain of 6.8% in the preceding month, the General Administration of Customs said on Saturday.
Fixed asset investment, which tracks construction activity, rose 10.5% last month, below forecasts for an increase of 10.9%.
The soft data followed disappointing Chinese trade and inflation figures last week, adding to doubts about whether the world’s second-largest economy is stabilizing.