Gold corrects back to just above $2,500 as USD recovers
LONDON (August 28) Gold (XAU/USD) exchanges hands just above $2,500 on Wednesday after sliding lower due to a rebound in the US Dollar (USD). Given Gold is mainly priced in USD, any strength in the Greenback tends to weigh on its price. The US Dollar Index (DXY) is up over a third of a percent in the 100.90s on Wednesday, rebounding from the 100.51 year-to-date lows touched on the previous day.
US data was mixed on Tuesday, with the Conference Board’s gauge of Consumer Confidence in August rising to 103.3 and beating expectations of 100.7. The optimism coming from the US consumer provided further evidence against a hard-landing scenario for the US economy. Labor market indicators, however, “fell to their weakest levels so far in this cycle, which supported concerns about the recent slowdown in the labor market,” according to Jim Reid, a strategist at Deutsche Bank.
Gold pulls back as concerns over the US economy moderate
Gold is moving lower on Wednesday as data out over the last few days paints a mixed picture of the state of the US economy. The Richmond Fed Manufacturing Index came in at -19 in August from -17 previously, when an improvement to -14 had been forecast. US housing data was mixed, meanwhile, with house prices falling 0.1% MoM in June against expectations of a 0.2% rise, but the S&P/Case-Schiller House Price Index revealing a 6.5% rise year-over-year against the 6.0% estimated.
The data follows better-than-expected US Durable Goods Orders numbers on Monday, which showed a sharp 9.9% rise in July – the highest reading since May 2020, and helped reassure investors about the US economy.
Despite these releases, the market’s expectations for the trajectory of US interest rates appears little changed. The probability of the Fed making a mega 0.50% interest rate cut in September remains at mid-30%, according to the CME FedWatch Tool. This is around where it was after Federal Reserve (Fed) Chairman Jerome Powell made the clearest signal yet that cuts were in the pipeline at his speech in Jackson Hole. That said, 3-month US Treasury yields are rising on Wednesday whilst longer maturity bond yields are edging lower, which could suggest bond traders are not confident the Fed will go for a mega 0.50% cut. Such a move, if it were to transpire, would benefit Gold, which as a non-interest paying asset tends to see gains the more interest rates fall.
Traders now look to the Fed’s favored gauge of inflation, the Personal Consumption Expenditures (PCE) Price Index, out on Friday, for a clearer steer of where the Fed could be going on interest rates. Thursday’s second estimate of the US Gross Domestic Product (GDP) data for Q2 could impact expectations, whilst on Wednesday the slim docket provides only commentary from Atlanta Fed President Raphael Bostic. Nvidia (NVDA) earnings will be released after hours.
Extreme long positioning continues to be a problem for Gold bulls trying to hike up the price, according to Daniel Ghali, Senior Commodity Strategist at TD Securities.
“Our gauge of macro fund positioning in Gold is now at the highest levels recorded in the depths of the pandemic. This red flag marked the local highs set in Sep 2019, and previously in July 2016,” says Ghali.
“Downside risks are now more potent. The ship is crowded. In fact, it has scarcely been as crowded as it is today. Do you have a slot secured on the lifeboat?” adds the strategist.
FXStreet
