Gold Posts Solid Gain after U.S. Dollar Rally Stalls

December Comex Gold futures posted a solid gain on Wednesday after trading lower earlier in the session. Traders initially sold gold after the release of China’s bearish manufacturing PMI report because of a stronger U.S. Dollar.

Global equity market initially sold off on the news, sending investors into the safety of the U.S. Dollar. Since gold is dollar-denominated, prices fell in reaction to the firmer Greenback. The inability to follow-through to the upside by the dollar and a recovery in the European equity markets, helped the gold market gain traction, leading to a strong gain.

Crude oil futures dipped slightly on Wednesday after the market retreated from earlier gains, following the release of a bearish Chinese manufacturing report. However, a better-than-expected U.S. inventories report helped trigger a rebound.

November Crude Oil futures extended gains after weekly government data showed a fall in U.S. crude oil inventories for the second consecutive week. According to the U.S. Energy Information Administration, U.S. commercial crude stockpiles fell by 1.9 million barrels last week, compared with analysts’ expectations for a decrease of 1 million barrels.

Total U.S. oil inventories may be at record highs, but today’s report indicates a rebalancing of the supply/demand situation may be taking place. The current data shows that refinery crude runs fell by 310,000 barrels per day, while refinery utilization rates dropped by 2.2 percentage points.

Gains may have been limited on Wednesday because gasoline stocks rose by 1.4 million barrels, compared with analysts’ expectations for a 819,000 barrel gain.

The EUR/USD weakened shortly after the opening with the Forex pair testing its lowest level since September 4. The sell-off was a reaction to the weaker-than-expected manufacturing data from China. Investors reacted to fresh services and manufacturing PMI data from France, Germany and the Euro Zone.

Also helping to boost the EUR/USD were slightly less dovish comments by European Central Bank President Mario Draghi. In a prepared speech before the European Parliament’s Committee on Economic and Monetary Affairs, he said the ECB needed more time to assess whether to boost its stimulus program. He further added that the bank was ready to act but needed more evidence to see if the emerging market slowdown, the Euro’s strength and the fall in commodity prices would knock inflation from its projected path.

According to Markit Economics, the Euro Zone Purchasing Managers’ Index for manufacturing and services slipped to 53.9 in September from 54.3 in August, the third-quarter average was the highest level in more than four years. The report showed that new orders grew at the fastest rate in five months and a gauge for the amount of raw materials bought by manufacturers stood at a 19-month high, signaling increasing production in the coming months.

Euro Zone Flash Manufacturing PMI was 52.0. The estimate was 52.2. Flash Services PMI also missed the 54.1 estimate with a reading of 54.0. Although some of the numbers missed the estimates and were lower than the previous month, the price action suggests the Euro Zone is on track for steady growth.

The GBP/USD continued to sell-off, reaching its lowest level since September 8. The heavy selling pressure started on Tuesday after the Office for National Statistics reported the U.K. deficit rose steeply after a surprise fall in tax receipts. Britain’s headline measure of public borrowing rose to 12.1 billion pounds in August from 10.7 billion pounds a year earlier. Traders were looking for it to narrow to 9 billion pounds.