GOLD Price Analysis – Sep 02, 2024
Daily Price Outlook
Gold prices (XAU/USD) failed to stop their early-day decline, trading around $2,497.91 and hitting an intraday low of $2,490.12.
This drop is mainly due to a stronger US dollar, which gained strength as traders adjusted their expectations for significant Federal Reserve policy easing.
This change in outlook followed the release of the US July Personal Consumption Expenditures (PCE) Index, indicating a less aggressive stance on monetary policy.
Meanwhile, the increasing concerns about China’s sluggish economy, the world’s largest gold consumer, have intensified pressure on gold prices.
It should be noted that the Chinese Manufacturing Purchasing Managers' Index (PMI) fell to 49.1 in August, down from 49.5 in July and below the expected 49.5.
This decline signals a contraction in the manufacturing sector, further exacerbating downward pressure on gold prices.
Looking ahead, investors will closely monitor key economic data, including the US ISM Manufacturing PMI on Tuesday and the Nonfarm Payrolls report on Friday.
These reports are expected to be closely watched by traders for potential impacts on market trends.
Stronger Dollar and Lower Fed Rate Cut Expectations Weigh on Gold Prices
On the US front, the broad-based dollar rose to a two-week high on Monday, as traders lowered their expectations for aggressive interest rate cuts by the Federal Reserve.
Markets are now pricing in a 70% chance of a 25 basis point rate cut by the Fed in September, with only a 30% likelihood of a larger 50 basis point reduction.
Meanwhile, the US Personal Consumption Expenditures (PCE) Price Index for July rose by 2.5% year-on-year, matching the previous month's increase but falling short of the 2.6% expected by the market.
The core PCE, which excludes food and energy, increased by 2.6% year-on-year, also below the anticipated 2.7%.
Therefore, the stronger dollar and reduced expectations for aggressive Fed rate cuts put downward pressure on gold prices.
The gold market is impacted by the increased dollar strength and lower-than-expected inflation data, leading to reduced investor demand for the precious metal.
Geopolitical Tensions Drive Investors Towards Gold as Safe-Haven Asset
On the geopolitical front, a general strike has been called across Israel by the Histadrut labor federation, urging the government to negotiate with Hamas for the release of hostages held in Gaza.
This follows the recovery of six hostages' bodies, leading to widespread protests and mourning. Hamas claims Israeli airstrikes have killed some hostages, adding to the tension.
Meanwhile, Yemen's Houthi rebels have attacked a Panama-flagged oil tanker in the Red Sea, though no casualties were reported.
The UN reports that 87,000 children in Gaza have received their first polio vaccine dose, but calls for a ceasefire continue as airstrikes persist. The vaccination effort aims to protect over 640,000 children but is hampered by ongoing violence.
Therefore, the ongoing geopolitical tensions and violence, including strikes and attacks, can increase market uncertainty and drive investors towards safe-haven assets like gold. This could lead to a rise in gold prices as traders seek stability amidst the turmoil.
China's PMI Drop Pressures Gold Prices Amid Economic Slowdown
Gold prices are being pressured by concerns about China’s economy, the largest consumer of gold. In August, China’s Manufacturing Purchasing Managers' Index (PMI) dropped to 49.1 from 49.5 in July, missing the expected 49.5 and signaling a slowdown in manufacturing activity.
This decline suggests that the manufacturing sector is contracting, which negatively impacts gold prices because it reflects weaker economic conditions in China, leading to reduced gold demand.
GOLD (XAU/USD) - Technical Analysis
Gold (XAU/USD) is currently trading at $2,497.50, reflecting a decline of 0.30% as it remains under pressure amidst a strengthening US Dollar.
The 4-hour chart reveals that Gold is trading just below a key pivot point at $2,504.66, which serves as a critical level for determining the near-term direction.
A break above this pivot could see the precious metal testing immediate resistance at $2,514.84, with subsequent targets at $2,529.23 and $2,540.41.
However, the technical indicators suggest a bearish bias. The Relative Strength Index (RSI) stands at 40, indicating that momentum is leaning towards the downside but is not yet in oversold territory.
Additionally, Gold is trading below its 50-day Exponential Moving Average (EMA) at $2,512.02, reinforcing the bearish outlook. Immediate support is located at $2,491.71, with further levels at $2,480.08 and $2,471.29.
Given the current technical setup, traders may consider short positions below the pivot point at $2,504.66, targeting the $2,487.00 level.
Conversely, a break above $2,505 could invalidate this bearish view, paving the way for a potential rally towards higher resistance levels.
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