tradingkey.logo

Gold price slumps amid buoyant US Dollar after soft ISM PMI

FXStreetAug 1, 2024 6:21 PM

  • Gold price falls, after hitting a daily high of $2,462.
  • ISM report shows manufacturing activity at recessionary levels, spurring economic fears.
  • US jobless claims rise, highlighting labor market weakness; geopolitical tensions in the Middle East add to safe-haven demand for Gold and USD.

Gold price edges lower during the North American session after hitting a daily low and high of $2,430 and $2,462, respectively, amid a stronger US Dollar. The Greenback recovered after data showed that business activity in the manufacturing sector contracted, while US jobs data underscored the weak labor market. At the time of writing, the XAU/USD trades at $2,438, down 0.35%.

The financial markets turned risk-averse following an Institute for Supply Management (ISM) report that underscored that manufacturing activity in July tumbled to recessionary levels and printed its lowest reading since December 2023. This spurred fears that the Federal Reserve is behind the curve and that the economy could be headed instead for a harder landing.

This is reflected by US equities plunging between 1.56% and 3.27% while US Treasury bond yields sink sharply. This bolstered the golden metal and the Greenback, which investors seek due to their safe-haven status.

The US Bureau of Labor Statistics (BLS) revealed that the number of Americans filling for unemployment benefits rose compared to the previous week’s report and exceeded economists' estimates.

The latest round of data justifies lowering interest rates, but Fed officials have remained skeptical about the disinflation process and stated they would like to see more data.

Another reason driving precious metals prices is geopolitical risks. Tensions in the Middle East remain high after Hezbollah’s attacks on Israel over the weekend and the retaliation of the latter, which killed senior Hamas and Hezbollah officials.

Ahead of the week, Friday’s July Nonfarm Payrolls report will be a crucial piece of the puzzle as the Fed pivots toward becoming more concerned about employment. At the time of writing, market participants had priced 80 basis points (bps) of easing toward the end of 2024.

Daily digest market movers: Gold price drops amid recession fears

  • The Federal Reserve decided to hold rates unchanged but indicated that favorable data on inflation and further weakening in the labor market could prompt action.
  • US Initial Jobless Claims for the week ending July 27 jumped to 248K, above estimates of 236K and the prior week’s 235K.
  • The Institute for Supply Management (ISM) Manufacturing PMI for July fell deeper into contractionary territory from 48.5 to 46.8 and missed estimates for an expansion to 48.8, marking the lowest reading since December 2023.
  • The CME FedWatch tool shows that the central bank will reduce interest rates by 25 basis points (bps) from their current levels in the September meeting.

Technical analysis: Gold price trips down below $2,450

Gold price uptrend remains intact, yet buyers face stir resistance around weekly highs, which could pave the way for a pullback. Buying momentum has faded, as depicted by the Relative Strength Index (RSI), aiming lower, opening the door for correction.

If XAU/USD slides below $2,400, that could exacerbate a drop to the July 30 low of $2,376. A further downside is seen if traders clear the 50-day Simple Moving Average (SMA) at $2,362, followed by the 100-day SMA at $2,334.

On the other hand, if XAU/USD climbs past $2,450 and challenges the daily top at $2,462, the all-time high (ATH) at $2,483 is up next, followed by the psychological $2,500 mark


Disclaimer: The content of this article solely represents the author's personal opinions and does not reflect the official stance of Tradingkey. It should not be considered as investment advice. The article is intended for reference purposes only, and readers should not base any investment decisions solely on its content. Tradingkey bears no responsibility for any trading outcomes resulting from reliance on this article. Furthermore, Tradingkey cannot guarantee the accuracy of the article's content. Before making any investment decisions, it is advisable to consult an independent financial advisor to fully understand the associated risks.

Related Instruments

Recommended Articles

tradingkey.logo
tradingkey.logo
Intraday Data provided by Refinitiv and subject to terms of use. Historical and current end-of-day data provided by Refinitiv. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.
* References, analysis, and trading strategies are provided by the third-party provider, Trading Central, and the point of view is based on the independent assessment and judgement of the analyst, without considering the investment objectives and financial situation of the investors.
Risk Warning: Our Website and Mobile App provides only general information on certain investment products. Finsights does not provide, and the provision of such information must not be construed as Finsights providing, financial advice or recommendation for any investment product.
Investment products are subject to significant investment risks, including the possible loss of the principal amount invested and may not be suitable for everyone. Past performance of investment products is not indicative of their future performance.
Finsights may allow third party advertisers or affiliates to place or deliver advertisements on our Website or Mobile App or any part thereof and may be compensated by them based on your interaction with the advertisements.
© Copyright: FINSIGHTS MEDIA PTE. LTD. All Rights Reserved.