30/08/24

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Gold prices are experiencing a decline as positive economic data from the United States dampens expectations of imminent interest rate cuts. Market participants are now focusing on upcoming data regarding core Personal Consumption Expenditures (PCE) inflation, which could offer further insights into future rate movements.

Currently, gold (XAU/USD) is trading in the low $2,510s as weakened safe-haven demand impacts its value. The metal has encountered resistance near the August peak of $2,531 following a revision of the second-quarter Gross Domestic Product (GDP) growth to 3.0%, up from an earlier estimate of 2.8%. Additionally, a slight decrease in Initial Jobless Claims below forecasts has alleviated recession fears, contributing to a more optimistic market outlook.

Given the stronger economic indicators, it is anticipated that the Federal Reserve will adopt a more measured approach toward interest rate reductions. Nevertheless, futures markets are still pricing in approximately 100 basis points of cuts by the end of the year. Should rates decline, this would generally create a more favorable environment for gold, as lower rates diminish the opportunity cost associated with holding a non-interest-bearing asset.

In the context of long-term demand, China appears pivotal for gold prices. Recent data indicated a 17% increase in net gold imports from China in July, being the first month of gains since March. Experts predict that, despite a current economic slowdown, increased gold reserves by the People’s Bank of China and broader de-dollarization efforts among BRICS nations may bolster future demand. However, a near-term decline in demand is also anticipated due to high gold prices affecting jewelry sales.

As traders anticipate the PCE inflation figures, expectations are that the core rate could rise to 2.7% year-over-year in July. Any significant deviation from this prediction could dramatically affect gold prices — higher inflation might necessitate sustained elevated interest rates, diminishing gold’s appeal, while lower inflation could favor the metal.

Another concern for gold comes from its current positioning in the derivatives market, where a crowded long trade raises the likelihood of downside risks. Analysts suggest that extreme positions could begin to shift, leading to potential downward pressure on prices. Recently, tactical short positions have been established, indicating caution among market traders.

In terms of technical analysis, while gold is currently fluctuating within a narrow range, its medium to long-term trend remains bullish. For a substantive breakout to occur, a breakthrough above the previous all-time high or indications of a downward movement below certain lows will be critical levels to watch. These markers will guide traders in determining the next steps in the gold market.