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- Gold reversed gains after hitting a daily high of $2,368, down more than 1.70%.
- Strong global PMI data from S&P in the US supported the US dollar, with the DXY rising 0.14% to 105.80.
- Mixed US economic data keeps speculation about a Fed rate cut alive.
gold prices It reversed course on Friday, falling more than 1.70%. Economic data out of the United States prompted investor reaction to price fewer interest rate cuts by the Federal Reserve (Fed) due to the solid state of the economy. The XAU/USD pair is trading at $2,317, below the opening price after hitting a daily high of $2,368.
The US economy continued to give mixed signals regarding its strength. S&P Global revealed June Purchasing Managers’ Index (PMI) readings beat estimates and beat May data. However, the US housing sector continued to deteriorate after May existing home sales exceeded the level and declined compared to April data.
In the Purchasing Managers’ Index (PMI) release, investors abandoned gold and bought the US dollar, which, according to… US dollar index The DXY index rose 0.14% to 105.80.
US data revealed during the week highlights the uncertainty as some economic indicators reiterate that the economy remains strong. On the positive side, industrial production, S&P Flash PMIs, and… Retail advanced, although the latter was lower than the previous month.
Conversely, the housing sector continued to deteriorate, while the jobs market was worse than expected, as measured by Americans who filed unemployment claims. The data maintained investors’ chances in September Nourish it Survival interest rate cut.
Against this backdrop, gold prices continued to decline, along with technical indicators, indicating a correction after the three-month rally that began in March and lifted the XAU/USD pair to an all-time high of $2,450.
The CME FedWatch tool shows the odds of a 25 basis point Fed rate cut in September at 59.5%, up from 57.5% on Thursday. Meanwhile, the December 2024 federal funds rate futures contract suggests the Fed will cut by 36 basis points at the end of the year.
Daily summary of market drivers: Gold price decline due to the strength of the US dollar
- US Treasury yields are flat, with the 10-year Treasury yield stable at 4.261%.
- Flash PMIs for the global manufacturing and services sector expanded in June above estimates. The manufacturing PMI rose to 51.7, up from 51.3 and beating the estimate of 51. The services PMI rose from 54.8 to 55.1, beating expectations of 53.7.
- US existing home sales in May were lower than expected, falling to 4.11 million from 4.14 million in April, representing a contraction of -0.7%.
- Fed officials advised patience regarding interest rate cuts, stressing that their decisions will remain data-driven. Despite last week’s positive CPI report, policymakers stressed the need to see more data similar to May before considering any changes.
- Although the US CPI report shows that the inflation slowing process is continuing, Federal Reserve Chairman Jerome Powell commented that they remain “less confident” about the progress of inflation.
Technical Analysis: Gold price falls below the neckline of the head and shoulders, heading towards the $2,300 level
Gold’s downtrend resumed on Friday after buyers tested a head and shoulders pattern, pulling the XAU/USD price above the neckline of the pattern. Despite achieving a daily close above the last one, sellers defended the neckline and pushed the spot price to a new three-day low at $2,316.
However, the path of least resistance is to the downside. The next support will be $2,300. Once cleared, XAU/USD will fall to $2,277, the low of May 3, followed by the high of $2,222 on March 21. There are further losses below, as sellers look to the head and shoulders area Schedule Pattern target $2,170 to $2,160.
Conversely, if gold reclaims the $2,350 area, it will expose additional key resistance levels such as the June 7 cycle high at $2,387, before challenging the $2,400 figure.
Frequently asked questions about gold
Gold has played a major role in human history as it has been widely used as a store of value and a medium of exchange. Currently, apart from its luster and use in jewellery, the precious metal is widely viewed as a safe haven asset, meaning it is a good investment during turbulent times. Gold is also widely viewed as a hedge against inflation and currency depreciation because it is not dependent on any specific issuer or government.
Central banks are the largest holders of gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase gold to improve the perceived strength of the economy and the currency. High gold reserves can be a source of confidence for a country’s solvency. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase since records began. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are major reserve assets and safe havens. When the value of the dollar declines, gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rise in the stock market tends to weaken the price of gold, while a sell-off in riskier markets tends to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession could cause the price of gold to rise rapidly due to its safe-haven status. As a lower-yielding asset, gold tends to rise as interest rates fall, while a higher cost of money usually negatively impacts the yellow metal. However, most of the moves depend on how the US Dollar (USD) behaves as the asset is priced in Dollars (XAU/USD). A stronger dollar tends to keep the price of gold in check, while a weaker dollar is likely to push gold prices higher.
