Gold prices rose by 1.5% to $2,362 per troy
ounce this week, after rolling back from $2,374 early on Thursday. Investors
might be cautious looking ahead to further major events. Weak business activity
and declining GDP in the United States have become major upside drivers for
gold prices.
U.S. S&P Global Manufacturing PMI rose to
51.3 points from 50.0, while ISM reported a decline to 48.7 points from 49.2
points in the sector. According to Atlanta Federal Reserve (Fed) GDPNow, Q2
2024 GDP is expected to slow down to 1.8% QoQ from 2.7%. This convinced
investors of the cooling of the U.S. economy.
Borrowing costs in the American debt market
started to drop. 10-year Treasuries yields declined to 4.38% from 4.50%. Bets
on an interest rate cut by the Fed in September soared above 50.0%. Still, this
is a very fragile stance. Thus, gold prices immediately rose by 1.3% but scaled
back on Tuesday. The idea of a weaker U.S. economy was again confirmed by ADP
Nonfarm Payrolls, which dropped to 152,000 from 188,000. 10-year debt yields
declined to 4.26%, while bets on an interest rate cut in September surged above
60.0%.
Shortly afterwards, May S&P Global
Services PMI in the U.S. was released, rising to 54.8 points from 51.3, while
ISM Non-Manufacturing Business Activity jumped to the highest reading since
November 2022 at 61.2 points from 50.9. Market euphoria was replaced by
cautious optimism. U.S. 10-year debt yields rose to 4.30% from 4.26%, and bets
on interest rate cuts by the Fed in September dropped to 56.8%. Nevertheless,
the S&P 500 broad market index updated its all-time highs, while gold
prices resumed climbing.
Investors are awaiting the official release of
U.S. May Nonfarm Payrolls on Friday and Fed Chair Jerome Powell's comments
after the regular meeting of the regulator on June 12. Investors expect the
U.S. labour market to cool, prompting the Fed to signal a future shift to a
dovish stance. However, even large investors are uncertain about gold prices'
future movements. The SPDR Gold Trust (GLD) has reported a neutral fund flow
balance during this and the previous week. Apparently, investors have decided
to pause and see where gold prices will head.
The Bank of Canada was the first to cut its
interest rates among developed nations. The European Central Bank is expected
to follow. The Fed has some time to wait and see, joining the monetary easing
club in September. Thus, the Dollar could strengthen before then, putting
additional pressure on gold prices and potentially forcing them to decline.
From a technical standpoint, gold prices are
above the support at $2,290-2,310 per ounce and may easily rebound to the
resistance at $2,400, or even rise to $2,450 per ounce. A dive below the
support at $2,290-2,310 will signal the start of a deep correction.
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