Gold prices gain in Asia as Caixin manufacturing PMI drops

Investing.com - Gold drifted higher Tuesday on a weaker than expected Caixin manufacturing survey for April in China, raising prospects of continued easy monetary policy.

The Caixin Manufacturing PMI for April came in at 49.4, below the 49.9 expected.

"The Caixin China General Manufacturing PMI for April came in at 49.4, down 0.3 points from March's reading. All of the index's categories indicated conditions worsened month-on-month, with output slipping back below the 50-point neutral level. The fluctuations indicate the economy lacks a solid foundation for recovery and is still in the process of bottoming out. The government needs to keep a close watch on the risk of a further economic downturn," Caixin Insight Group chief economist He Fan said.

Ahead, the RBA cash rate decision is close run for analysts, but most expect it to hold steady at a record low 2.0%.

Elsewhere, John Williams, president of the San Francisco Fed, said that the long-term view on global interest rates remains below trend even after central banks start hiking.

On the Comex division of the New York Mercantile Exchange, gold for June delivery traded drifted 0.08% higher to $1,296.80 a troy ounce.

Silver futures for May delivery fell 0.03% to $17.825 an ounce, while copper futures for May delivery dropped 0.66% to 2.250 a pound.

Overnight, gold surged above $1,300 an ounce for the first time in 15 months in spite of light volume due to the May Day holiday, as the dollar fell to fresh 9-month lows amid soft U.S. manufacturing data.

On Monday morning, the Institute for Supply Management (ISM) said its Manufacturing Index for the month of April fell 1.0 to 50.8, below consensus forecasts for a reading of 51.4. Within the report, supplier deliveries plunged 1.1 points, dragging down the composite index as inventory levels remained low throughout the sector. New orders also slowed by 2.5%, while employment remained in contraction despite a gain of 1.1 points.

The yen rose to fresh 18-month highs against the dollar at ¥106.16 as investors continued to digest broad signals that the Bank of Japan will not intervene in global foreign exchange markets in the coming weeks to weaken its currency. Last Thursday, the BOJ rattled global markets with a surprising decision not to implement further easing measures in an effort to stave off deflation.

One day earlier, the Federal Reserve left its benchmark interest rate unchanged at its April's monetary policy meeting. The Federal Open Market Committee (FOMC) has left interest rates steady in each of its three meetings this year. At the meeting, the Fed also indicated that it will remain data dependent with the timing of future interest rate decisions.

Any interest rate hikes by the Fed this year are viewed as bearish for gold, which struggles to compete with high-yield bearing assets in rising rate environments. Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.

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