Gold prices rose more than 1% on Wednesday as a report showing weaker-than-expected hiring by U.S. private employers stoked economic fears the day after another report showed weak manufacturing activity in the world's largest economy.
Spot gold was up 1.4% at $1,499.41 per ounce. Prices had hit a near two-month low of $1,458.50 on Tuesday, before climbing as much as 1% during the session. U.S. gold futures climbed 1.3% to settle at $1,507.90 an ounce.
"The main thing that is moving gold higher right now is yesterday's manufacturing data that came out worse since 2009... and that has fed expectations of lower interest rates in the U.S. and is pushing gold higher," said Bob Haberkorn, senior market strategist at RJO Futures.
"The fact that we have contraction in manufacturing shows the U.S. is not insulated from the rest of the world."
The ADP National Employment report on Wednesday showed U.S. private employers hired fewer workers than expected in September, pointing to a labor market slowdown. A day earlier, the Institute for Supply Management (ISM) reported that U.S. manufacturing activity slumped to a more than 10-year low in September.
A major global share index hit its lowest level in a month on fears that fallout from the U.S.-China trade war is spreading to the U.S. economy and could further hurt global growth. The U.S. dollar steadied after being knocked off its highest levels in nearly two years after the manufacturing data.
The weak data bolstered expectations for another interest rate cut by the U.S. Federal Reserve. This would reduce the opportunity cost of holding non-yielding bullion and should also weigh on U.S. yields and the dollar, in which gold is priced.
Investors are awaiting the next Fed meeting later this month. The Fed cut interest rates in September for the second time this year.
On Tuesday, President Donald Trump said interest rates were "too high" and that a strong dollar was hurting U.S. manufacturers.
"Gold has a problem with the dollar index still being near 99 and gold seems to be weathering that storm," said George Gero, managing director at RBC Wealth Management.
Citing the stock market, the ADP employment report and other factors including stop-loss selling, Gero said, "gold is probably going to be a little more stable."