Gold fails to prolong its recovery, while the Dollar rebounds

• The price of Gold recovers strongly, supported by the correction of the Dollar, while the US economy seems to lose resistance.
• US companies begin to operate at lower capacity in line with the deteriorating demand environment.
• Jerome Powell in Jackson Hole could outline the benefits of higher interest rates over a longer period.

The price of Gold (XAU/USD) rallied confidently as the US dollar and Treasury yields faced selling pressure after S&P Global reported weak preliminary PMI data for August. Slower factory activity and dismal growth in the service sector raise concerns about the resilience of the US economy and bolster hopes for a neutral comment from Federal Reserve (Fed) Chairman Jerome Powell at the Jackson Hole Symposium .

Investors remain concerned about the financial situation of US companies, as rising interest rates and higher inflationary pressures force them to reduce operating capacity in line with the deteriorating demand environment. If this situation persists, labor market conditions are likely to deteriorate.

Daily Summary of Market Moves: Gold Price Trims Some Gains Ahead of Fed’s Powell Speech

• Gold price continues its bullish streak on Thursday as the US dollar remains subdued and Treasury yields dip ahead of the Jackson Hole Symposium.
• The precious metal strengthens as preliminary US PMI data for August released by S&P Global on Wednesday indicates the economy is losing resilience.
• The flash manufacturing PMI came in at 47.0, disappointing expectations of 49.3 and July’s 49.0 reading. The Services PMI dipped to 51.0 versus estimates of 52.2 and the previous release of 52.3.
• The weak PMI numbers point to the impact of the Fed’s tight monetary policy on the economy.
• Chris Williamson, Chief Economist at S&P Global Market Intelligence, said: “The near-stall in business activity in August casts doubt on the strength of US economic growth in the third quarter. The survey shows that the industry-led growth acceleration services in the second quarter has faded, accompanied by a further drop in factory production.”
• The US central bank has aggressively raised interest rates to 5.25%-5.50% in a stubborn war on inflation. Inflation has come down significantly to 3.2%, but investors are concerned how the Fed will reach its target rate of 2% as price pressures persist.
• Meanwhile, investors will focus on Fed Chairman Jerome Powell’s remarks at the Jackson Hole Symposium.
• Jerome Powell is expected to stress the need to keep interest rates higher for longer rather than go for further monetary policy tightening.
• At the July policy meeting, Powell commented that more hikes were expected if economic data remained upbeat.
• Any comments about rate cuts by Powell in Jackson Hole will enhance the risk-taking capacity of market participants.
• Aside from interest rate guidance, the outlook for inflation and the US economy will receive a lot of attention.
• Dollar Index rebounds strongly despite US Census Bureau reporting weaker than expected durable goods orders. The economic data contracted by 5.2%, oscillating from the increase of 4.6% registered in June. Investors were anticipating a 4% contraction.
• US 10-year Treasury yields extended their correction to 4.19% after PMI data suggested the US economy is losing resilience.
• By contrast, St. Louis Fed President James Bullard said the US economy faces risks of stronger growth. This could heighten the need for further interest rate hikes from the central bank to keep up the fight against inflation.

Technical Analysis: Gold Price Corrects From Two-Week Highs

Gold price continues its four-day winning streak, supported by a correction in the US dollar and Treasury yields, as PMI data led investors to question the resilience of the US economy. The precious metal’s rally move above the 200 day EMA, suggesting that the longer-term trend is once again bullish. The yellow metal rises above the 20 day EMA as well, but a close above it is badly needed to maintain the bullish momentum.