Gold (XAU/USD) extended its decline on Thursday, trading more than a percentage point lower in the $2,370s amid a broad sell-off in stocks and commodities fueled by concerns over global economic growth.
The precious metal’s drop is partly driven by technical factors, reflecting a predicted downward trajectory within its trading range. Robust US economic data released on Wednesday, including preliminary Q2 Gross Domestic Product (GDP) and S&P Global Purchasing Managers Index (PMI) figures, have mitigated fears of “stagflation,” a scenario where economic stagnation coincides with high inflation—conditions traditionally favorable for gold.
Data from the US Bureau of Economic Analysis revealed a 2.8% annualized increase in preliminary Q2 GDP, surpassing both the 2.0% forecast and the previous quarter’s 1.4% growth. This positive data suggests the US economy remains in strong shape and lessens concerns about stagflation. Consequently, the Federal Reserve is expected to maintain a cautious approach to interest rate cuts, potentially keeping rates elevated longer than anticipated. Higher interest rates diminish gold’s appeal as a non-yielding asset.
Additional US economic indicators released on Thursday showed a mixed picture: Durable Goods Orders fell by 6.6% in June, while Jobless Claims decreased slightly. On Wednesday, the US S&P Global Composite PMI improved to 55 in July from 54.8 in June. The Manufacturing PMI, however, declined to 49.5 from 51.6, while the Services PMI increased to 56.0 from 55.3.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, described the PMI data as indicative of a “Goldilocks” scenario—robust economic growth with moderated inflation. He noted that rising input costs, driven by higher raw material, shipping, and labor expenses, could potentially lead to increased selling prices or margin squeezes.
Despite ongoing expectations that the Federal Reserve will cut interest rates multiple times before year-end—generally making gold more attractive—this potential has not prevented the metal’s decline. Additionally, the unwinding of the “Trump trade,” which has led to lower US bond yields, has also positively impacted gold prices.
In political developments, polls indicate US Vice President and Democratic candidate Kamala Harris may lead over former President Donald Trump, suggesting a potentially less inflationary economic outlook if she wins.
Moreover, expectations of increased physical demand from India, following a reduction in the country’s gold import tax from 15% to 6%, and the long-term geopolitical shift by BRICS+ nations toward a gold-backed currency system, could eventually benefit gold. These moves are seen as efforts to counterbalance US influence and sanctions by leveraging gold as a global reserve asset.
