Gold Price Halts Five-Day Slide but Faces Headwinds from Hawkish Fed and Trade Tensions

Introduction

Gold prices have managed to put a stop to their recent five-day losing streak, trading slightly higher at around $1,920, with a 0.20% gain in the Asian session on Thursday. Despite this brief respite, the precious metal is under pressure as traders weigh the likelihood of a 25 basis points (bps) interest rate hike by the US Federal Reserve (Fed) by the end of 2023.

Hawkish Fed Outlook

The hawkish sentiment surrounding the Fed’s policy decision in the upcoming September meeting continues to influence the market. This outlook has been driving up US Treasury yields, bolstering confidence among US Dollar (USD) bulls. The 10-year US bond yield has risen to 4.28%, an increase of 0.05% at the time of writing. The US Dollar Index (DXY), which measures the USD against six other major currencies, hovers around 104.80.

Positive US Economic Data

Additionally, the US ISM Services Purchasing Managers’ Index (PMI) has reached a six-month high, registering a reading of 54.5 in August, surpassing expectations of 52.5 and the previous month’s figure of 52.7. While the S&P Global Composite and Services PMIs have dipped slightly, coming in at 50.2 and 50.5, respectively, compared to market consensus figures of 50.4 and 51.0. These moderate US economic indicators have lent support to the USD.

Trade Tensions and Economic Concerns

Investor sentiment remains subdued due to ongoing concerns about the deteriorating economic situation in China and the persistent trade tensions between the United States and China. These factors continue to cast a shadow over the minds of investors, which in turn undermines the price of gold.

Nevertheless, it’s worth noting that the bearish tone in equity markets may provide some limited support to the price of gold due to its safe-haven status.

Escalating US-China Trade Tensions

The trade tensions between the US and China have escalated further, potentially acting as headwinds for the price of gold. According to Reuters, US Commerce Secretary Gina Raimondo has indicated that no revisions are expected for the US tariffs imposed on China during the previous administration led by Donald Trump. Any changes will depend on the ongoing review by the US Treasury Office, creating uncertainty in the trade relationship between the two economic giants.

Conclusion

In conclusion, gold prices have managed to halt their recent decline but are still under pressure from a hawkish Fed and ongoing US-China trade tensions. While the precious metal may find some support from its safe-haven status and concerns about the Chinese economy, it remains sensitive to developments in the broader financial markets and economic indicators, making it a focal point for investors in the coming days.