Gold is Rising on Political Turbulence

Gold prices are rising by 1.4% to $2360 per troy ounce. The yellow metal jumped by 1.5% to $2364 per ounce on Wednesday, marking a two-week high. The Head and Shoulders pattern failed to materialize after an unsuccessful attempt to break the "neck" line of the pattern, and gold prices bounced from $2300 per ounce. Declining inflation in the U.S. also supported gold prices and pushed the Dollar down.

Key economic indicators contributed to this movement. The ISM Manufacturing PMI dropped to 48.2 points from 48.7 points. Nonfarm Payrolls from ADP came in at 150,000 versus the expected 163,000. Additionally, the ISM Non-Manufacturing PMI slumped to 49.6 points from 61.2 points in May. Consequently, the Greenback instantly lost 0.6% on the news. U.S. 10-year debt yields dropped to 4.33% from 4.43%, while bets on interest rate cuts by the Federal Reserve (Fed) in September jumped to 72.6% from 64.1%. This is an ideal situation for gold.

However, the FOMC Minutes supported the Dollar after policymakers removed the indication of the three-month series of slowing inflation to cut rates. Earlier, the Fed stated that a three-month series of steady decline in inflation was needed to start cutting interest rates. Policymakers have likely received disappointing inflation data for June, which could result in hawkish comments from the Fed after its meeting in late July.

Another major factor is the political chaos in the United States. Some Democrats have demanded that acting U.S. President Joe Biden step down from the presidential race. So far, he has refused and continues to run for his next term in the White House. Political observers note that the pressure on Biden is still mounting, suggesting he might announce his withdrawal during Independence Day on July 4. This move could push gold prices either to $2400 or down to $2300 per ounce.

Investors are also anticipating the official U.S. labor market report for June, which will be released this Friday. Consensus suggests a cooling of the labor market. If these expectations are confirmed and no major political issues interfere, gold may take another step to the upside. Large investors are hesitating, as evidenced by the SPDR Gold Trust (GLD) reporting net inflows of $323 million. While this is not enough to sustain a gold rally, it is certainly enough for an upside impulse to $2400 per ounce.