Gold extends losses as WGC reports weak gold demand, US economic data misses estimates

Gold price fails to recover amid weaker demand reported by World Gold Council, weak factory activities, and job openings data.
US factory activities contracted for the ninth month in a row and job openings missed expectations.
Fed Goolsbee favors more interest-rate hikes from Fed despite easing inflation.

Gold price (XAU/USD) faced immense selling pressure while attempting to sustain above the crucial resistance of $1,970.00 on Tuesday as gold demand remained weak in the first half of 2023. World Gold Council (WGC) reported a decline in gold purchases by 2% YoY due to higher gold prices and an aggressive rate-tightening cycle by global central banks. Apart from that, the immense strength of the Greenback builds severe pressure on bullion.

US Manufacturing PMI contracted straight for the ninth month and landed at 46.4 below expectations of 46.8. While Factory Orders landed at 47.3 and outperformed expectations of 44.0. US JOLTS Job Openings data were released at 9.582M against the prior release of 9.62M. After the hangover of US factory activities, investors will shift to labor market data, which will set an undertone for the Federal Reserve’s (Fed) September monetary policy. For now, the chances of an interest rate hike from the Fed in its September policy are lower.

Daily Digest Market Movers: Gold price declines further as economic data misses estimates

Gold price drops sharply after facing selling pressure around $1,970.00 as demand for gold remains weak due to higher gold prices and interest rates.
World Gold Council reported a decline in gold demand by 2% YoY due to higher interest rates by central banks pushing households to elevate deposits to banks rather than investing in bullion.
Fears of more interest rate hikes from the Federal Reserve (Fed) deepen as Chicago Fed Bank President Austan Goolsbee favors further policy tightening despite easing inflationary pressures.
Minneapolis Fed Bank President Neel Kashkari remained positive that inflation is coming down positively but showed concerns about easing labor market conditions due to an aggressive policy-tightening cycle.
The US Dollar Index continues its three-day winning spell and prints a fresh three-week high at 102.43 as a pause in the rate-tightening spell by the Fed is still out of sight.
Meanwhile, 10-year US Treasury yields remain subdued at around 4% as inflation remains in check after soft United States core Personal Consumption Expenditure (PCE) data was released on Friday.
The US Dollar rebounds despite the US Institute of Supply Management (ISM) agency reporting a contraction in July’s Manufacturing PMI data straight for the ninth month. US Factory activities remained between a consensus of 46.8 and the prior release of 46.0 at 46.5.
New Orders Index that indicates forward demand outperformed expectations. The economic data landed at 47.3 against expectations of 44.0 and the former release of 45.6.
In addition to the Manufacturing PMI, investors will focus on Factory Orders which are expected to drop sharply to 44.0 against the previous month’s print of 45.6.
Investors would get some meaningful cues about labor demand through JOLTS Job Openings data for June, which will be released at 14:00 GMT. As per expectations, Job Openings would drop to 9.62M against May’s release of 9.824M.
On Wednesday, Automatic Data Processing (ADP) will report Employment Change data for the US, which will be published at 12:15 GMT. As per the consensus, the US economy added a fresh 188K payrolls in July, significantly lower than novel employment additions of 497K made in June.
Upbeat labor market conditions would make more interest-rate hikes from the Fed warranted.
Fed survey data released on Monday showed that US banks reported tighter credit standards and weaker loan demand from both businesses and consumers during the second quarter, Reuters reported.

Technical Analysis: Gold price skids below $1,950

Gold price trades inside Monday’s range as investors await crucial economic data for further action. The precious metal demonstrates a squeeze in volatility but will start expanding after economic events. The yellow metal is constantly trading sideways around the 20-day Exponential Moving Average (EMA) around $1,955.00.

On a smaller time frame, the Gold price is forming a Head and Shoulder chart pattern, which indicates that a bearish reversal is underway.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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