Gold slumps as US Dollar gains on strong US PMI data

Gold price (XAU/USD) slumps below $3,300 during North American trading hours on Thursday after surrendering initial gains, following a revisit of the two-week high around $3,345 earlier in the day. The yellow metal weakens as the US Dollar (USD) gains ground after the release of the stronger-than-projected growth in the preliminary United States (US) S&P Global Purchasing Managers’ Index (PMI) data for May.

The Composite PMI came in significantly higher at 52.1 from 50.6 in April. The PMI report showed that the overall business activity in the private sector expanded at a robust pace, with a meaningful increase in output in both the manufacturing and the services sectors.

At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rises to near 99.90 after recovering from its recent low of 99.35.

Technically, a higher US Dollar makes the Gold price an expensive bet for investors.

However, the outlook of the precious metal remains firm as escalating concerns over already-stretched United States (US) debt have strengthened the demand for safe-haven assets, keeping the US Dollar (USD) and demand for Treasury bonds on the back foot.

Additionally, fading hopes of a positive outcome from truce talks between Russia and Ukraine also support the Gold price. Geopolitical tensions increase the demand for safe-haven assets, such as Gold.

Daily digest market movers: Gold price turns upside down as US Dollar gains ground

• The strong performance by the Gold price in the past few trading days was driven by increasing concerns over the US debt. During European trading hours, President Donald Trump’s tax-cut bill was approved by the lower house of Congress and advanced to the Senate. The legislation is expected to increase the national debt by $3.8 trillion over a decade, according to the nonpartisan Congressional Budget Office.
• Market experts have warned that the clearance of Trump’s new bill will widen the US fiscal deficit crisis and increase interest obligations for the administration at a time when the nation is battling potential economic risks prompted by Trump’s tariff policy. 
• US debt concerns increased after Moody’s downgraded the US sovereign credit rating by one notch to Aa1 from Aaa on Friday. The firm stripped off the US top credit rating for successive administrations and Congress failing to agree on measures to “reverse the trend of large annual fiscal deficits and growing interest costs”. 
• Domestically, growing fears of stagflation are also expected to keep the Gold demand intact. On Wednesday, JPMorgan Chase & Co CEO Jamie Dimon argued in favor of the Federal Reserve’s (Fed) stance to maintain interest rates at their current levels due to potential stagflation risks from geopolitics, deficits, and price pressures, Bloomberg reported. “The Fed is doing the right thing to wait and see before it decides on monetary policy,” Dimon said. "I don’t agree that we’re in a sweet spot," he added.
• Theoretically, the demand for precious metals increases in a high-inflation environment, but the Fed’s stance to keep borrowing rates at their current levels for longer bodes poorly for non-yielding assets such as Gold.
• Meanwhile, Initial Jobless Claims for the week ending May 16 have come in slightly lower than projected. Individuals claiming jobless benefits for the first time were recorded at 227K, slightly fewer than estimates of 230K and the prior release of 229K.
• On the geopolitical front, hopes of a ceasefire between Russia and Ukraine have diminished as US President Trump stated in a private conference call with European leaders that Russian leader Vladimir Putin would not agree to a truce because he thinks he is winning the war, the Wall Street Journal (WSJ) reported. 
• There is a notable shift in US President Trump’s stance on war in Ukraine, as earlier this week, he stated in a post on Truth.Social that both nations have agreed to immediate truce talks in the Vatican City. However, Trump didn’t provide any time frame for such negotiations. Trump also expressed confidence that both countries will focus on ending the war. 

Technical Analysis: Gold price holds key 20-day EMA

Gold price struggles to break above the upward-sloping trendline on a daily time frame around $3,335, which is plotted from the December 12 high of $2,726. However, the near-term trend of the precious metal is bullish as its price holds above the 20-day Exponential Moving Average (EMA), which trades around $3,268.

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

Looking up, the May 7 high at around $3,440 will act as key resistance for the metal. On the downside, the May 15 low at $3,120 is a key support zone.