Gold prices dipped on Thursday, briefly testing the crucial $2,500 mark as traders secured profits ahead of pivotal U.S. economic data. The dip was intensified by the US dollar’s resurgence, driven by climbing Treasury yields. Despite this, the broader market sentiment remains optimistic, fueled by concerns over the U.S. economy, including recession risks and the potential for a Federal Reserve rate cut in September.
Key Drivers of Gold's Pullback:
- Profit-taking: Traders cashed in gains as gold flirted with recent highs.
- Stronger Dollar: A rally in the dollar, spurred by rising Treasury yields, weighed on gold prices.
- Support Levels: Gold found key support near $2,475, a level reinforced by multiple technical indicators.
Bullish Sentiment Prevails Amid Fed Rate Cut Speculation
Even with the pullback, the demand for gold stays robust, as market participants anticipate a possible rate cut by the Federal Reserve. The Fed's July meeting minutes showed significant support for reducing interest rates, a move that typically boosts gold by lowering the cost of holding non-yielding assets.
Concerns over a potential U.S. recession, highlighted by weaker labor market data, are further bolstering gold’s appeal. Investors are keenly watching Fed Chair Jerome Powell’s upcoming address at the Jackson Hole Symposium and U.S. PMI data for more clues on interest rates and gold’s future trajectory.
Mixed Economic Data Adds to Gold's Volatility
On Thursday, U.S. economic reports offered a mixed bag, impacting market sentiment and gold prices. Initial jobless claims held steady at 232,000, aligning with expectations but slightly up from last week’s 228,000, reflecting a stable labor market.
U.S INITIAL JOBLESS CLAIMS ACTUAL: 232K VS 227K PREVIOUS; EST 232KU.S CONTINUING JOBLESS CLAIMS ACTUAL: 1863K VS 1864K PREVIOUS; EST 1870KU.S CHICAGO FED NATIONAL ACTIVITY (JUL) ACTUAL: -0.34 VS 0.05 PREVIOUS; EST 0.03
— First Squawk (@FirstSquawk) August 22, 2024
The Flash Manufacturing PMI dropped to 48.0, missing both the 49.5 forecast and last month’s 49.6, signaling a slowdown in manufacturing. However, the Flash Services PMI climbed to 55.2, surpassing expectations of 54.0, indicating strength in the services sector.
Existing Homes Sales breaks the losing streak pic.twitter.com/KKDXkejayZ
— Mike Zaccardi, CFA, CMT (@MikeZaccardi) August 22, 2024
These mixed signals have heightened market uncertainty, keeping gold prices volatile as traders assess the likelihood of a Fed rate cut. All eyes are now on Friday's key events, including Fed Chair Jerome Powell's speech at the Jackson Hole Symposium and New Home Sales data, which could further influence gold prices.
Gold Faces Resistance at $2,530, Strong Support at $2,475
As discussed in previous technical analysis, gold prices are struggling to maintain momentum above the key resistance level of $2,532, as seen on the 4-hour chart. The failure to break through this resistance has led to a bearish correction, bringing prices below the psychological support level of $2,500.
Key Technical Levels:
- Resistance: $2,530 remains a critical level that gold has yet to break.
- Support: Gold is finding strong support near $2,475, bolstered by the 50-day EMA and the upper boundary of a bullish channel.
Given the current conditions, traders might consider buying if gold holds above $2,475. However, a break below this support level could signal further downside potential. As always, monitoring key economic indicators and Fed announcements will be crucial for anticipating gold’s next move.
Conclusion:Gold’s recent dip is seen as a temporary correction, with strong support around $2,475. Traders should remain cautious, watching for a potential rebound if gold maintains this level or a possible further decline if it breaks below.