Gold Price Holds Steady Amidst Dollar Retreat, But Faces Downward Pressures

The price of gold has been treading water, hovering around $1,927 per troy ounce in the early hours of the Asian trading session on Monday. While the precious metal is managing to stay near the previous week’s close, it faces challenges from multiple fronts, including a retreating US Dollar (USD), rising US Treasury yields, and influences from China’s economic data.

USD Retreats but Treasury Yields Rise

The US Dollar Index (DXY), which measures the USD’s performance against a basket of major currencies, is currently trading at approximately 104.80, slightly below its peak since April. The weakening of the USD has provided some minor support to gold prices. However, the rise in US Treasury yields, particularly the 10-year bond yields reaching 4.29%, up by 0.52%, could exert downward pressure on gold.

USD’s Robustness Supported by Positive Economic Data

The USD is expected to remain resilient, supported by a consistent flow of positive economic data from the United States. For instance, US Initial Jobless Claims for the week ending September 2 reported a reading of 216,000, below both the market consensus of 234,000 and the previous week’s revised figure of 229,000. This demonstrates the health of the US labor market and bolsters the USD’s strength.

China’s Disinflationary Pressures on Gold

China’s Consumer Price Index (CPI) data for August was published recently, indicating a year-on-year increase of 0.1%. While this marks an improvement from the previous month’s figure of -0.3%, it fell short of market expectations, which had anticipated a 0.2% reading. This relatively soft CPI reading suggests that disinflationary pressures persist in China, which could potentially weigh on gold prices.

Uncertainty Surrounding China’s Economic Situation

Throughout the week, market participants will closely monitor developments in China’s economy. Understanding the challenges that Chinese authorities must address to implement necessary monetary and fiscal measures to achieve their target of 5% GDP growth this year will be crucial. Any signs of economic instability or obstacles in achieving this goal could impact the global financial landscape, potentially affecting gold prices.

Fed’s Hawkish Stance and US CPI Data Awaited

Adding to gold’s challenges is the anticipation that the US Federal Reserve (Fed) will maintain higher interest rates for an extended period. There is also an expectation that the Fed will implement a 25 basis point (bps) interest rate hike by the end of 2023. This hawkish stance from the central bank could exert significant downward pressure on gold prices, as higher interest rates make non-interest-bearing assets like gold less attractive to investors.

Investors will keenly await the release of the US Consumer Price Index (CPI) data for August later in the week. This data will provide further insights into the inflationary pressures in the US economy, which could influence the USD’s performance and, consequently, gold prices.

In summary, while gold has held its ground in the face of a retreating USD, it faces challenges from rising Treasury yields, China’s disinflationary pressures, and the Fed’s hawkish stance. The interplay of these factors will determine the precious metal’s direction in the coming days and weeks.