Gold prices decline as soft US data boosts US Dollar

• Gold prices fall as traders return from Labor Day, despite a stronger Dollar amid US economic slowdown signs.
• US ISM Manufacturing PMI remains in contraction; employment sub-component improvement offers market some relief.
• Despite a drop in 10-year Treasury yields to 3.84%, gold only briefly recovers after dipping to $2,473.

Gold prices fell during the North American session as traders returned to their desks following the Labor Day holiday. Data from the United States (US) hinted that business activity contracted, though traders bought the Greenback, a headwind for the golden metal. The XAU/USD trades at 2490, down 0.34%.

Earlier, the Institute for Supply Management (ISM) revealed the August manufacturing PMI, remained below the 50-line contraction/expansion level, an indication of an economic slowdown. Despite this, an employment sub-component of the report improved slightly.

This is a relief for Federal Reserve officials, who remained worried about the labor market weakness. Fed Chair Jerome Powell said in a speech in Jackson Hole that employment risks are tilted to the upside.

Bullion prices ignored the fall in US Treasury bond yields yet recovered some ground after hitting a low of $2,473. The US 10-year Treasury note yields 3.84%, dropping eight basis points after the ISM’s report.

According to the CME FedWatch Tool, markets are pricing in a 65% chance of the Fed cutting its rate by 25 basis points (bps) at the upcoming September meeting. This will be a headwind for the Greenback and a tailwind for the non-yielding metal, which is expected to rise moderately, as 35% of the traders had positioned for a 50 bps cut.

"If the US jobs report is significantly weaker, speculation about a U.S. recession and faster rate cuts will resurface, further supporting gold," analysts at Commerzbank noted.

The US economic docket will be busy this week with the release of JOLTS job openings, the ADP National Employment Change, and the Nonfarm Payrolls (NFP) figures.

Daily digest market movers: Gold price traders await busy US economic calendar

• ISM Manufacturing PMI for August improved from 46.8 to 47.2, below estimates of 47.5.
• July’s JOLTS job openings are expected at 8.10 million, down from 8.184 million in June.
• Private hiring, revealed by the ADP National Employment Change report, is foreseen increasing from 122K in July to 150K in August.
• August’s NFP figures are expected to rise from 114K to 163K, while the Unemployment Rate could dip, according to the consensus, from 4.3% to 4.2%.
• December 2024 Chicago Board of Trade (CBOT) fed funds future rates contract hints that investors are eyeing 98 basis points of Fed easing this year.

Technical outlook: Gold price set to dive further below $2,500

Gold price is upward biased, even though momentum shifted in sellers’ favor and opened the door for a drop to $2,470. The Relative Strength Index (RSI) hints that buyers are in charge, but in the near-term, the yellow metal could weaken.

In that event, if XAU/USD drops below $2,500, the next support would be the August 22 low at $2,470. Once surpassed, the next stop would be the confluence of the August 15 swing low and the 50-day Simple Moving Average (SMA) near the $2,427-$2,431 area.

Conversely, if XAU/USD stays above $2,500, the next resistance would be the ATH, and the following resistance would be the $2,550 mark. A breach of the latter will expose $2,600.