Investing.com - Gold prices edged higher in European trade on Tuesday, extending gains from the prior session as disappointing U.S. economic data tempered expectations of a near-term interest rate hike by the Federal Reserve, weighing on the dollar.
Gold for December delivery on the Comex division of the New York Mercantile Exchange tacked on $7.25, or 0.54%, to trade at $1,354.75 a troy ounce by 06:50GMT, or 2:50AM ET.
A day earlier, gold inched up $4.30, or 0.32%, after data showed the New York Federal Reserve’s index of manufacturing conditions unexpectedly contracted in August, raising concerns about the strength of third-quarter economic growth.
The disappointing report led investors to push back expectations for the next U.S. rate hike. Fed funds futures are currently pricing in just a 9% chance of a rate hike by September. December odds were at around 42%.
Gold is sensitive to moves in U.S. rates, which 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.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, slumped to a more than one-week low of 95.03. It was last at 95.07 by early Tuesday, down 0.5% on the day.
Dollar weakness usually benefits gold, as it boosts the metal's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.
The yellow metal flirted with a more than two-year high above the $1,370-level earlier this month before coming under pressure as a robust U.S. employment report revived speculation of a U.S. interest rate hike in the coming months.
But those hopes were dashed following the release of a recent string of unexpectedly weak data, including retail sales and nonfarm productivity.
U.S. inflation data due later in the day will be in focus, as investors attempt to gauge if the world's largest economy is strong enough to withstand an increase in borrowing costs in the coming months.
Other pieces of data scheduled for Tuesday include July housing starts and building permits, as well as industrial output for the same month.
For the year, the precious metal is up nearly 26%, boosted by concerns over global growth and expectations of monetary stimulus.
Also on the Comex, silver futures for September delivery climbed 18.5 cents, or 0.93%, to trade at $20.03 a troy ounce during morning hours in London, while copper futures gained 0.3 cents, or 0.16%, to $2.155 a pound.