- Gold prices fall as traders return from Labor Day, despite a stronger dollar amid signs of a slowing U.S. economy.
- The US ISM manufacturing PMI remains in contraction; improvement in the employment subcomponent offers some relief to the market.
- Despite a drop in 10-year Treasury yields to 3.84%, gold only briefly recovered after falling to $2,473.
Gold prices fell during the North American session as traders returned to their desks following the Labor Day holiday. Data from the United States (US) hinted that business activity contracted, although traders bought the Dollar, a headwind for the golden metal. XAU/USD is trading at $2,490, down 0.34%.
Earlier, the Institute for Supply Management (ISM) revealed that the August manufacturing PMI remained below the 50 level that separates contraction from expansion, an indication of economic slowdown. Despite this, an employment subcomponent of the report improved slightly.
This is a relief for Federal Reserve officials, who remained concerned about the weakness of the labor market. Fed Chairman Jerome Powell said in a speech at Jackson Hole that employment risks are tilted to the upside.
Gold prices shrugged off the drop in US Treasury bond yields but regained some ground after hitting a low of $2,473. The yield on the 10-year US Treasury bond is at 3.84%, down eight basis points after the ISM report.
According to the CME’s FedWatch tool, markets are pricing in a 65% chance that the Fed will cut its rate by 25 basis points (bps) at the next meeting in September. This will be a headwind for the Dollar and a tailwind for the non-yielding metal, which is expected to rise moderately, as 35% of traders had positioned for a 50bp cut.
“If the US jobs report is significantly weaker, speculation about a US recession and faster rate cuts will resurface, further supporting gold,” Commerzbank analysts noted.
The US economic calendar will be busy this week with the release of JOLTS job openings, ADP national employment change and Non-Farm Payrolls (NFP) figures.
Daily Market Drivers Roundup: Gold traders expect a busy US economic calendar
- The ISM manufacturing PMI for August improved to 47.2 from 46.8, below estimates of 47.5.
- JOLTS job openings for July are expected to be 8.10 million, down from 8.184 million in June.
- Private hiring, as revealed by the ADP National Employment Change Report, is projected to rise from 122K in July to 150K in August.
- August NFP figures are expected to rise from 114K to 163K, while the unemployment rate could fall, according to consensus, from 4.3% to 4.2%.
- The Chicago Board of Trade (CBOT) December 2024 federal funds rate futures contract suggests investors are looking at 98 basis points of Fed easing this year.
Technical Outlook: Gold Price Prepares to Fall Below $2,500
Gold price has a bullish bias, although the momentum shifted in favor of sellers and opened the door for a drop to $2,470. The Relative Strength Index (RSI) suggests that buyers are in charge, but in the short term, the yellow metal could weaken.
In that case, if XAU/USD drops below $2,500, the next support would be the August 22 low at $2,470. Once cleared, the next stop would be the confluence of the August 15 low and the 50-day simple moving average (SMA) near the $2,427-$2,431 area.
Conversely, if XAU/USD sustains above $2,500, the next resistance would be the ATH, and the next resistance would be the $2,550 level. A break of the latter will expose $2,600.
Gold FAQs
Gold has played a pivotal role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from its luster and use for jewelry, the precious metal is considered a safe haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. In order to support their currencies in turbulent times, central banks tend to diversify their reserves and buy gold to improve the perception of the strength of the economy and the currency. High gold reserves can be a source of confidence in a country’s solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase on record. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasury bonds, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
Gold prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, Gold prices tend to rise when interest rates fall, while rising money prices often weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep Gold prices in check, while a weaker Dollar is likely to push Gold prices higher.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
