Investing.com - Gold prices dropped on Tuesday after an upbeat U.S. manufacturing report fueled demand for the U.S. dollar, which trades inversely with the yellow metal.
On the Comex division of the New York Mercantile Exchange, gold futures for December delivery traded at 1,265.70 a troy ounce during U.S. trading, down 1.69%, up from a session low of $1,263.20 and off a high of $1,288.60.
The December contract settled down 0.23% at $1,287.40 on Friday. U.S. markets were closed on Monday for the U.S. Labor Day holiday.
Futures were likely to find support at $1,258.00 a troy ounce, the low from June 17, and resistance at $1,297.60, last Thursday's high.
The greenback firmed and gold fell after the Institute for Supply Management reported that its manufacturing purchasing managers’ index jumped to 59.0 in August from 57.1 in July, defying analysts' calls for the index to tick down to 56.8.
On the index, a reading above 50.0 indicates industry expansion, below indicates contraction.
The new orders component of the index rose to 66.7, an increase of 3.3 points from 63.4 in July.
The employment index grew for the fourteenth consecutive month the report said, registering 58.1, down 0.01 points from 58.2 in July.
Also in the U.S., the Census Bureau reported earlier that U.S. construction spending rose to 1.8% in July from -0.9% in June, whose figure was revised up from -1.8%.
Analysts had expected U.S. construction spending to rise to 1.0% last month.
The numbers fueled market expectations for the Federal Reserve to wind down stimulus programs as early as next month and raise interest rates some time next year.
Loose monetary policies, including rock-bottom interest rates, dovish Fed language and three rounds of asset purchases, have boosted gold prices by suppressing interest rates since the 2008 financial crisis.
The dollar, meanwhile, saw robust gains as the euro slid on expectations that the European Central Bank may loosen policy at its meeting later this week.
Meanwhile, silver for December delivery was down 1.38% at $19.223 a troy ounce, while copper futures for December delivery were down 0.09% at $3.158 a pound.