The ISM non-manufacturing purchasing managers index rose to 54.5% in August, the highest level since February 2021. The data showed that the services sector continued to expand at a strong pace, despite rising inflation and interest rates.
The stronger economic data also supported the dollar, which rose against a basket of other currencies. A stronger dollar makes gold more expensive for foreign buyers.
The yield on the 10-year Treasury note also rose, reaching 4.295%, the highest level since May. Higher interest rates make gold less attractive as an investment, as they offer a higher return for investors.
“Gold is under pressure from a combination of factors, including rising interest rates, a stronger dollar, and strong economic data,” said Edward Moya, senior market analyst at OANDA. “Until these headwinds subside, gold is likely to remain under pressure.”
The Fed is expected to raise interest rates by 50 basis points at its meeting next week, and is on track to raise rates by a total of 175 basis points this year. These rate hikes are intended to cool inflation, which is at a 40-year high.
The Fed’s tightening cycle is likely to weigh on gold prices in the near term. However, gold is still seen as a safe haven asset, and could attract buying interest if the global economy weakens or if there is a major geopolitical event.
Platinum prices also fell on Wednesday, as investors focused on the stronger dollar and rising interest rates.
Platinum is used in a variety of industrial applications and is also seen as a safe haven asset. However, it is more sensitive to changes in interest rates than gold, as it offers a lower yield.
The World Platinum Investment Council forecast in a report released Wednesday that the metal will see its largest annual supply deficit on record this year. However, this news did not have a significant impact on prices, as investors remained focused on the broader market trends.
Overall, the outlook for gold and platinum prices is mixed. The two metals are likely to remain under pressure from rising interest rates in the near term. However, they could attract buying interest if the global economy weakens or if there is a major geopolitical event.