Gold prices fall as feeble US data boosts US dollar

Gold prices are falling despite a strengthening US dollar on signs of an economic slowdown.
The ISM manufacturing index in the US continues to decline; an improvement in the employment component provides some relief to the market.
Despite the 10-year Treasury yield falling to 3.84%, gold is only briefly recovering after falling to $2,473.

Gold prices fell during the North American session as traders returned to their desks after the Labor Day holiday. Data from the United States (US) suggested that business activity had contracted, although traders bought the Greenback. XAU/USD traded at $2,490, down 0.34%.

Earlier, the Institute for Supply Management (ISM) revealed that the August manufacturing PMI remained below the 50-line contraction/expansion level, indicating an economic slowdown. However, the employment subcomponent of the report improved slightly.

That’s a relief for Federal Reserve (Fed) officials who remain concerned about the weakness in the labor market. Federal Reserve Chairman Jerome Powell said in a speech in Jackson Hole that employment risks are tilted to the upside.

Gold bullion prices missed the fall in US Treasury yields, but recovered slightly after hitting a low of $2,473. The yield on the 10-year US Treasury bond is 3.84%, down eight basis points after the ISM report.

According to the CME FedWatch tool, markets are pricing in a 65% chance of the Fed cutting interest rates by 25 basis points at its upcoming September meeting. That would be a headwind for the U.S. dollar and a tailwind for the non-yielding metal, which is likely to rise moderately as 35% of traders are positioning for a 50 basis point cut.

“If the US employment report turns out to be significantly weaker, speculation about a US recession and faster interest rate cuts will return, which will further support gold,” analysts at Commerzbank noted.

The US economic calendar will be busy this week with the release of JOLTS job openings data, the ADP national employment change index, and nonfarm payroll (NFP) data.

Daily Market Factors Review: Gold Price Traders Await a Busy US Economic Calendar

The ISM manufacturing PMI index for August improved from 46.8 to 47.2, below estimates of 47.5.
The number of JOLTS job vacancies is expected to be 8.10 million in July, down from 8.184 million in June.
According to the ADP National Employment Change report, the number of people employed in the private sector is expected to raise from 122,000 in July to 150,000 in August.
The August NFP figure is expected to rise from 114,000 to 163,000, while the unemployment rate is expected to fall from 4.3% to 4.2%, according to consensus.
The December 2024 federal funds interest rate futures contract on the Chicago Board of Trade (CBOT) suggests investors are expecting 98 basis points of monetary policy easing from the Fed this year.

Technical Outlook: Gold Price to Fall Below $2,500

Gold is set to rally, even though momentum has shifted in favor of sellers and opened the way for a decline to $2,470. The Relative Strength Index (RSI) suggests that buyers are in charge, but the yellow metal could weaken in the low term.

In this case, if XAU/USD falls below $2,500, the next support will be the August 22 low at $2,470. Once above that, the next stop will be the confluence of the August 15 swing low and the 50-day basic moving average (SMA) near the $2,427-$2,431 area.

Conversely, if XAU/USD holds above $2,500, the next resistance will be the all-time high and the next resistance will be the $2,550 level.