Gold Price Loses Momentum Amid US-China Tensions and Soft Economic Data

As the early European session unfolds, the gold price shows signs of losing momentum around the $1,955 level. XAU/USD faces follow-through selling pressure as tensions between the US and China over access to technology escalate.

Chinese authorities announced additional policy guidelines on Monday, but no specific plans to bolster the faltering economy and domestic consumption. Lackluster activity data increased pressure on officials to take action. The Chinese Caixin Manufacturing PMI for July dropped to 49.2 from the previous 50.5, marking the lowest level since January. This caps the upside in precious metals as China is one of the largest gold consumers. Additionally, the Manufacturing Purchasing Managers’ Index (PMI) increased slightly to 49.3 in July, but remained below 50 for the fourth consecutive month, indicating a contraction zone. The NBS Services PMI also fell from 53.2 in June to 51.5 in July.

On the other hand, evidence of easing underlying price pressures in the United States might influence the Federal Reserve (Fed) to reconsider its hawkish stance. The Personal Consumption Expenditures (PCE) Price Index decreased to 3% in June, below the market’s expectation of 3.1%, and the Core PCE Price Index stood at 4.1% annually, below market expectations of 4.2%.

The softer economic data could prompt the Fed to approach the end of its rate-hiking cycle, which may limit the US Dollar’s upside and act as a tailwind for the gold price. It’s worth noting that gold is sensitive to rising interest rates as they increase the opportunity cost of holding non-yielding bullion.

Furthermore, renewed trade war tensions between the US and China over access to technology might exert additional pressure on the gold price. China announced export restrictions on certain drones and drone-related equipment to the US, citing “national security and interests,” with the restrictions taking effect on September 1.

Market participants are awaiting the US ISM Manufacturing Purchasing Managers Index (PMI) data later in the North American session for clearer direction in XAU/USD. Additionally, the JOLTS Job Openings report, ADP Private Employment, Weekly Jobless Claims, and Unit Labor Cost data will be released later in the week, with the US Nonfarm Payrolls (NFP) being the highlight. These data releases could influence USD price dynamics and determine short-term trading opportunities in the gold market. The ongoing headlines surrounding the Sino-US relationship will also be closely monitored, potentially putting the gold price under short selling pressure today.