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Gold drops but stays near a two-week high

Gold prices

Spot gold dropped 0.1% at $2,353.14 per ounce after reaching highest level since June 21 in the earlier session

Gold prices dropped on Thursday but stayed near a two-week high reached in the previous session after softer-than-expected U.S. economic data fuelled hopes that the Fed could cut interest rates as soon as September.

Spot gold dropped 0.1% at $2,353.14 per ounce, as of 0637 GMT after reaching highest level since June 21 in the earlier session. U.S. gold futures shed 0.3% at $2,363.10.

U.S. economic data on Wednesday, including weak services and ADP employment reports, showed a slowing economy. A separate report showed a rise in initial applications for U.S. unemployment benefits last week.

Traders are now looking out for U.S. nonfarm payrolls (NFP) data, due on Friday.

A softer-than-expected ISM services report was the gift that Fed doves have been waiting for ahead of a NFP. A move to $2,400 is on the cards should NFP confirm the economic cracks we are seeing elsewhere, said Matt Simpson, senior analyst at City Index.

I doubt we will be seeing the U.S. dollar index retest 106 any time soon, so we expect traders to fade into dollar bounces and buy dips on gold.

Markets are now pricing in a 73% probability of the Federal Reserve cutting interest rates at its September meeting, shows the CME FedWatch Tool.

Meanwhile, Fed officials at their last meeting acknowledged that the U.S. economy seemed to be slowing but still counselled a wait-and-see approach before committing to rate cuts, as per minutes from the June 11-12 session.

Spot gold may test support zone of $2,346-$2,352, a break below which could be followed by a drop into the range of $2,329-$2,340, as per Reuters’ technical analyst Wang Tao.

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