By Myra P. Saefong and Rachel Koning Beals
Gold futures rallied Tuesday to log their highest settlement in nearly three weeks as a fall in the U.S. service-sector index to its weakest level in over six years appeared to diminish the likelihood of a U.S. interest-rate hike this month, fueling a drop in the dollar.
December gold GCZ6, +0.06% jumped $27.30, or 2.1%, to settle at $1,354 an ounce. Prices haven’t settled at a level this high since Aug. 18, according to FactSet data. The session’s dollar and percentage gains were the largest since June 24, when prices rallied by more than $59 an ounce, or 4.7%, in the wake of the U.K.’s decision to exit from the European Union.
The ICE U.S. Dollar Index DXY, -0.04% a measure of the greenback against a basket of six rival currencies, was down 1.1% as gold prices settled. The greenback and dollar-denominated precious-metals prices tend to move inversely.
The Institute for Supply Management said Tuesday that its nonmanufacturing index fell to 51.4% last month from 55.5% in July. That was the weakest showing since February 2010.
“When you see the ISM nonmanufacturing number dropping like this, it shakes the floor on which traders are building the hopes that the Fed could increase the interest rate,” said Naeem Aslam, chief market analyst at ThinkMarkets, in a note. “A few more readings like this, and you can say goodbye to interest rate hike.”