Gold prices dipped during the North American session as traders resumed activity following the Labor Day holiday. The decline came despite signs of weakening business activity in the United States (US), as investors gravitated towards the US dollar. Currently, XAU/USD is trading at $2,490, marking a 0.34% drop.
The Institute for Supply Management (ISM) released its August Manufacturing PMI, which remained below the critical 50-point threshold, indicating a contraction in economic activity. However, the report also showed a slight improvement in the employment sub-index, offering some reassurance to Federal Reserve (Fed) officials who are concerned about the labor market. Fed Chair Jerome Powell recently highlighted the upside risks to employment during his speech at Jackson Hole.
Despite falling US Treasury yields, gold prices managed to recover slightly after hitting a low of $2,473. The yield on the US 10-year Treasury note decreased by eight basis points, settling at 3.84% following the ISM report.
Market expectations for the Fed’s upcoming September meeting, as reflected by the CME FedWatch Tool, indicate a 65% probability of a 25 basis point rate cut. This anticipated rate cut could weigh on the US dollar while providing a modest boost to gold, especially since 35% of traders are still betting on a 50 basis point cut.
Analysts at Commerzbank noted that a significantly weaker US jobs report could rekindle fears of a recession and accelerate expectations of rate cuts, which would further bolster gold prices.
Looking ahead, the US economic calendar is packed this week, with key releases including JOLTS job openings, the ADP National Employment Change, and the highly anticipated Nonfarm Payrolls (NFP) figures.
