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Gold price bulls have the upper hand; looks to US macro data for fresh impetus

  • Gold price attracts some dip-buyers on Tuesday and snaps a two-day losing streak. 
  • Bets for more Fed rate cuts and geopolitical risks continue to benefit the XAU/USD.
  • Traders now look to the release of key US macro data for some meaningful impetus. 

Gold price (XAU/USD) sticks to modest intraday gains through the early European session on Tuesday, albeit lacks follow-through and remains below the record peak touched last week. The Federal Reserve (Fed) Chair Jerome Powell's relatively hawkish comments on Monday forced investors to scale back their bets for a more aggressive policy easing. This assists the US Dollar (USD) to attract buyers for the second straight day and build on the overnight bounce from its lowest level since July 2023, which, in turn, is seen acting as a headwind for the commodity. 

The near-term bias for the Gold price, however, seems tilted in favor of bullish traders amid expectations that a continued slowdown in the US inflation should allow the Federal Reserve (Fed) to cut interest rates further. Furthermore, the risk of a further escalation of geopolitical tensions in the Middle East might continue to underpin demand for the traditional safe-haven precious metal. Apart from this, hopes that China's stimulus bonanza will revive physical demand support prospects for additional intraday gains for the XAU/USD ahead of the US macro data. 

Daily Digest Market Movers: Gold price bulls shrug off modest USD strength amid geopolitical risks

  • A slew of stimulus measures from China last week continued to boost investors' appetite for riskier assets and drove some flows away from the traditional safe-haven Gold price for the second successive day on Monday.
  • Furthermore, Federal Reserve Chair Jerome Powell adopted a more hawkish tone on the economy and said that he sees two more 25 basis point interest rate cuts this year as a baseline if the economy performs as expected.
  • The markets were quick to react and scaled back expectations for a more aggressive policy easing by the Fed, prompting some follow-through profit-taking around the non-yielding yellow metal and contributing to the slide. 
  • Meanwhile, the markets are still pricing in the possibility of an oversized Fed rate cut by the end of this year, which, along with persistent geopolitical tensions, acts as a tailwind for the safe-haven precious metal. 
  • Israeli forces have begun limited, localized, and targeted ground raids in Lebanon two days after they killed the head of the armed group Hezbollah Hassan Nasrallah in an airstrike, threatening to worsen the Middle East crisis.
  • Israel last week had rejected a proposal by the US and France, calling for a 21-day ceasefire on the Lebanon border to give time for a diplomatic settlement that would allow displaced civilians on both sides to return home.
  • Traders now look to the US economic docket – featuring the release of the ISM Manufacturing PMI and JOLTS Jobs Opening – for some impetus ahead of other key macro data scheduled at the beginning of a new month.

Technical Outlook: Gold price needs to climb beyond the $2,656-2,657 area for bulls to seize back control

From a technical perspective, the emergence of some buying near the $2,625-2,624 area reaffirms a support marked by a short-term ascending trend-channel resistance breakpoint and should act as a pivotal point. Some follow-through selling could drag the Gold price to the $2,600 mark, which if broken decisively could pave the way for some meaningful downside in the near term. The XAU/USD might then decline to the $2,560 intermediate support en route to the $2,535-2,530 region.

On the flip side, the $2,656-2,657 horizontal zone could offer some resistance ahead of the $2,672 area and the $2,685-2,686 region, or the record peak touched last week. This is closely followed by the $2,700 mark, which if conquered will be seen as a fresh trigger for bullish traders and set the stage for an extension of a multi-month-old uptrend.

Economic Indicator

ISM Manufacturing PMI

The Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging business activity in the US manufacturing sector. The indicator is obtained from a survey of manufacturing supply executives based on information they have collected within their respective organizations. Survey responses reflect the change, if any, in the current month compared to the previous month. A reading above 50 indicates that the manufacturing economy is generally expanding, a bullish sign for the US Dollar (USD). A reading below 50 signals that factory activity is generally declining, which is seen as bearish for USD.

Read more.

Next release: Tue Oct 01, 2024 14:00

Frequency: Monthly

Consensus: 47.5

Previous: 47.2

Source: Institute for Supply Management

The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers Index (PMI) provides a reliable outlook on the state of the US manufacturing sector. A reading above 50 suggests that the business activity expanded during the survey period and vice versa. PMIs are considered to be leading indicators and could signal a shift in the economic cycle. Stronger-than-expected prints usually have a positive impact on the USD. In addition to the headline PMI, the Employment Index and the Prices Paid Index numbers are watched closely as they shine a light on the labour market and inflation.

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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