Gold extends correction on technical selling and robust PMIs
LONDON (July 25) Gold (XAU/USD) weakens on Thursday, trading over a percentage point lower in the $2,370s amid widespread declines in stocks and commodities driven by global growth concerns.
Despite being a safe haven, Gold's weakness may be attributed to technical selling, as it experiences a predicted downward movement within its trading range. Additionally, marginally favorable preliminary US S&P Global Purchasing Managers Index (PMI) data for July released on Wednesday may have dampened fears of "stagflation," which is characterized by economic weakness coupled with high inflation — a scenario where Gold typically performs well.
Gold falls on technical selling and US PMI data
Gold declines on Thursday after data showed the preliminary S&P Global Composite PMI improved to 55 in July from 54.8 in June. The S&P Global Manufacturing PMI, however, declined to 49.5 from 51.6, while the Services PMI rose to 56.0 from 55.3.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted, "The flash PMI data signal a ‘Goldilocks’ scenario at the start of the third quarter, with the economy growing at a robust pace while inflation moderates." He added, "In terms of inflation, the July survey saw input costs rise at an increased rate, linked to rising raw material, shipping, and labor costs. These higher costs could feed through to higher selling prices if sustained, or cause a squeeze on margins."
Gold's decline comes despite continued expectations that the Federal Reserve (Fed) will cut interest rates multiple times before the year's end. Lower interest rates generally make non-interest-bearing assets like Gold more attractive, boosting demand.
Traders are now awaiting more US economic data for clarity on the trajectory of US interest rates. Key releases include the advanced US Q2 Gross Domestic Product (GDP) growth data on Thursday and the Personal Consumption Expenditures (PCE) Price Index report for June on Friday.
Meanwhile, there has been some unwinding of the "Trump trade," which has dragged US bond yields lower, positively impacting Gold. In some polls, US Vice president and Democrat candidate Kamala Harris now leads Republican leader and former US President Donald Trump, suggesting a potentially less inflationary outlook for the economy if she wins.
Additionally, there are expectations of increased physical demand from India, the world’s second-largest Gold consumer, following the government's reduction of its Gold import tax from 15% to 6%.
Gold is also expected to benefit from long-term geopolitical factors, particularly plans by BRICS+ nations to replace the US Dollar as the world’s reserve currency with their own Gold-backed alternative. This move aims to prevent the US from leveraging the Dollar in geopolitical conflicts and sanctions against enemy states.
FXStreet
