Earlier, gold had climbed to a daily high of $2,368, but has since shed more than 1.70%. The reversal comes after upbeat S&P Global PMI data pointed to continued strength in the US economy. This data bolstered the US Dollar, with the DXY index rising 0.14% to 105.80. While mixed economic signals keep speculation about future Fed rate cuts alive, the positive data appears to have dampened those hopes for now, pressuring gold prices.
Gold‘s three-month rally screeched to a halt on Friday, tumbling over 1.7% as economic data from the US threw a wrench in investor expectations. While the picture remains mixed, strong signals point to a more robust US economy than previously anticipated. This has investors rethinking the likelihood of a Federal Reserve rate cut later this year.
Earlier in the day, gold prices had reached a daily high of $2,368, but optimism quickly soured. The catalyst? Upbeat data released by S&P Global, showing their PMI readings for June exceeding both forecasts and May’s figures. This data surge strengthened the US Dollar, with the DXY index climbing 0.14% to 105.80. Investors, it seems, were more interested in the “Greenback” than the “yellow metal” following this news.
The US economic story continues to be one of contrasting chapters. While industrial production, flash PMIs, and retail sales (albeit lower than the prior month) all saw growth, the housing market remains a weak spot. Additionally, unemployment claims came in higher than expected, keeping the possibility of a September rate cut alive.
Technical indicators also suggest a correction is underway for gold prices. This follows a stellar three-month climb that began in March and propelled XAU/USD to its record high of $2,450. As the economic winds shift, so too does investor sentiment.
The CME FedWatch Tool reflects this change, with the odds of a September rate cut increasing to 59.5% from 57.5% the previous day. Looking further ahead, December 2024 fed funds rate futures suggest the Fed might even implement a 36 basis point cut by year’s end. With the US economy showing signs of resilience, gold’s luster may temporarily fade as investors adjust their strategies.
Gold Gleams Less as US Economy Flexes Muscle
The luster of gold faded on Friday as a confluence of factors chipped away at its safe-haven appeal. Here’s a breakdown of the forces behind the price drop:
- Bond Yields Stay Put: Yields on US Treasury bonds, particularly the benchmark 10-year note, held firm at 4.261%. This stability offered investors an alternative to gold, which doesn’t generate any income. When bond yields rise, investors are often incentivized to move their money away from gold and towards these fixed-income securities.
- US Economy Surprises on the Upside: S&P Global’s PMI data for June exceeded expectations across the board. Both the Manufacturing and Services sectors showed unexpected expansion, signaling a potentially more robust US economy than previously anticipated. This economic strength diminishes the need for gold as a hedge against economic turmoil.
- Housing Market Soft Spot: While the PMI data painted a rosy picture, the housing market continued to struggle. Existing home sales in May fell short of forecasts, highlighting a potential weak spot in the US economy. This mixed bag of data keeps the Fed’s rate cut decision on the table, offering some support to gold prices.
- Fed Cautious on Rate Cuts: Despite disinflationary trends in the latest CPI report, Federal Reserve officials remained cautious about cutting interest rates. Chair Jerome Powell emphasized a data-dependent approach, suggesting they need to see more consistent evidence of inflation cooling before making any policy changes. This wait-and-see stance from the Fed dampens expectations for an immediate rate cut, which would typically benefit gold prices.
Technical Outlook on the Gold Market (XAU/USD)
Similar to last week’s bearish close at $2,290, gold prices ended the week lower, settling at $2,322. However, unlike last week’s price break below a key support level, this week’s close held that level, suggesting potential for an upside reversal as the new week begins.
A closer look at the chart reveals this $2,322 price point has served as a consistent support level for some time. The Gold market’s return to this level after breaking below it last week indicates a possible consolidation phase. Technical indicators also point towards a consolidating trend.
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