Gold price dives below $2,400 as profit-booking intensifies

Gold price (XAU/USD) exhibits sheer weakness performance despite deepening geopolitical tensions and growing fears of a global economic slowdown. Conflicts in the Middle East appear to have widened as Iran-backed Hezbollah said it launched dozens of missiles on Israel on Saturday in retaliation to the assassination of Hamas leader Ismail Haniyeh by an Israeli airstrike in Tehran. Historically, geopolitical tensions increased Gold’s appeal as a safe-haven asset.

The global demand environment has deteriorated due to higher interest rates by the central banks. The world’s second-largest country, China, is going through a vulnerable phase due to poor demand from both the domestic and overseas markets. The Caixin Manufacturing PMI surprisingly contracted in July to 49.8. The Eurozone economy is also facing demand issues in its largest nation, to which the German administration has provided tax relief to individuals and the corporate sector. And now, slowing US economic growth has spurted slowdown fears.

Meanwhile, the upbeat US ISM Services PMI for July is expected to provide some relief to global markets amid worries about the US slowdown. The PMI report showed that activities in the services sector expanded at a faster pace to 51.4 from the estimates of 51.0 after contracting to 48.8 the previous month. 

Daily digest market movers: Gold price plummets along with US Dollar, and bond yields

• Gold price drops vertically below $2,400 in Monday’s American session. The precious metal faced selling pressure as profit booking kicked in while attempting to recapture all-time highs above $2,480. The overall outlook of the Gold price remains firm as US bond yields post fresh annual lows.
• 10-year US Treasury yields plunge to 3.67% as speculation for rate cuts by the Federal Reserve (Fed) in September seems certain. Lower yields on interest-bearing assets reduce the opportunity cost of holding an investment in non-yielding assets, such as Gold. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, plummets to the March low near 102.60.
• According to the CME FedWatch tool, 30-day Federal Funds futures pricing data shows that traders see a 50-basis point (bp) cut in interest rates in September as imminent. The data also shows that the Fed is expected to reduce its key borrowing rates by more than 100 bps this year.
• Market expectations for larger rate cuts have been prompted by a string of weak United States (US) economic data, which pointed to an economic slowdown and raised doubts on whether the Fed will achieve a ‘soft landing’. A soft landing is a situation in which the central bank grips over inflation without triggering a recession in the economy.
• Deteriorating labor market conditions and a sharp slowdown in the manufacturing sector are the major triggers that boosted expectations of bulk rate cuts. The July Nonfarm Payrolls (NFP) report showed that labor demand slowed significantly, and the Unemployment Rate unexpectedly rose to its highest level since November 2021.
• Fresh payrolls at 114K were significantly lower than estimates of 175K and June’s reading of 179K. The Unemployment Rate jumped to 4.3% from expectations and the prior release of 4.1%. Meanwhile, activities in the manufacturing sector, as measured by the ISM Manufacturing Purchasing Managers Index (PMI), contracted at a faster pace to 46.8 in July.
• Meanwhile, expectations of emergency rate cuts by the Fed have also strengthened. In an interview with CNBC on Monday, Chicago Fed Bank President Austan Goolsbee said, "Everything is always on the table, including raises and cuts," when he was asked about emergency cuts. Goolsbee assured, "If the economy deteriorates, the Fed will fix it."

US Dollar Price Today:

Technical Analysis: Gold price stays below $2,400

Gold price oscillates inside Friday’s trading range. The precious metal trades in a channel formation on a daily timeframe, which is slightly rising but broadly exhibited a sideways performance for more than three months. The 50-day Exponential Moving Average (EMA) near $2,370 continues to provide support to the Gold price bulls. 

The 14-day Relative Strength Index (RSI) oscillates within the 40.00-60.00 range, suggesting indecisiveness among market participants.

A fresh upside would appear if the Gold price breaks above its all-time high of $2,483.75, which will send it into unchartered territory.

On the downside, the upward-sloping trendline at $2,225, plotted from the October 6 low near $1,810.50, will be a major support in the longer term.