Gold Price Recovers on Rate Cut News but Faces Challenges from Strong US Data and Fed Rate Hike Odds

The price of gold experienced a recovery following news of a rate cut, but it remains under pressure due to positive data from the United States and increased odds of a September rate hike by the Federal Reserve (Fed). The US ISM Manufacturing PMI for July showed some improvement, reaching 46.4 compared to the previous 46.0, although it fell short of the expected 46.8. However, the ISM Manufacturing Employment Index declined to 44.4, missing both the expected 48.0 and the prior reading of 48.1. Meanwhile, the ISM Manufacturing Price Paid for the same month rose to 42.6, slightly surpassing the market forecast of 42.8.

Additionally, the US JOLT Job Openings for June eased to 9.582 million, lower than the expected 9.62 million and the previous reading of 9.616 million (revised). This data, coupled with the increasing likelihood of a September rate hike, boosted the US Dollar Index (DXY) to its highest level in three weeks, which put downward pressure on the Gold Price, ending its two-day winning streak.

However, it should be noted that the DXY experienced a recent retreat due to news suggesting Fitch ratings’ downgrade of the US government from AAA to AA+. This development may offer some support to the Gold Price.

Another factor influencing the Gold Price is the negative news surrounding China and India, the two largest gold consumers. The World Gold Council (WGC) reported a 2.0% annual decline in gold demand, attributed to higher interest rates set by major central banks, which reduced the physical demand for XAU/USD.

The gold demand in India, specifically, is expected to fall by 10% compared to the previous year, reaching its lowest level in three years. The high gold prices have dampened retail purchases, with an anticipated drop in New Delhi’s XAU/USD demand from 774.1 metric tons to 700 metric tons in 2023.

In China, downbeat data and concerns over Sino-US tensions also weigh on the country’s economic recovery, despite the unveiling of multiple stimulus measures by Beijing. The China Caixin Manufacturing PMI for July declined to 49.2 from the previous 50.5, falling short of the market forecast of 50.3. This marks the lowest level since January. Moreover, China’s Commerce Ministry announced restrictions on drone exports in response to the US tech and trade war tactics, citing “national security” measures.

The recent improvements in Indian and Chinese equities have somewhat limited the downside of the Gold Price amid these challenges.

Looking ahead, the Gold Price’s further movement will likely depend on the US employment data. The US Automatic Data Processing (ADP) Change Employment is seen as an early signal for the key Nonfarm Payrolls (NFP) report, which will be released on Friday. If the ADP data matches or falls below the downbeat forecast of 189K for July (compared to the previous 497K), it could trigger a rebound in the Gold Price by boosting the US Dollar bulls’ confidence.