Gold prices (XAU/USD) dipped to $2,320 from recent highs near $2,368 in early Asian trading on Monday, following the release of stronger-than-expected US economic indicators. The retreat came after Friday’s robust US Purchasing Managers Index (PMI) report, which exerted downward pressure on the yellow metal.
The upcoming release of final US Gross Domestic Product (GDP) figures and Core Personal Consumption Expenditures (PCE) Price Index this week will be closely monitored by market participants. These data points are expected to provide further insights into the health of the US economy amid ongoing mixed signals in June’s economic data.
According to S&P Global, the US Composite PMI for June surpassed expectations, rising to 54.6 from May’s final reading of 54.5, marking its highest level since April 2022. The Manufacturing PMI also exceeded forecasts, climbing to 51.7 in June from 51.3 in May, while the Services PMI rose to 55.1 from 54.8, both outperforming consensus estimates.
Federal Reserve officials have adjusted their stance cautiously, with Fed Bank of Richmond President Tom Barkin emphasizing the central bank’s readiness and the need to gather more data in the coming months. Fed Bank of Minneapolis President Neel Kashkari suggested it could take up to two years to bring inflation back to the target of 2%. The hawkish undertones from the Fed, coupled with robust US economic data, have bolstered the US Dollar and contributed to the decline in gold prices. Higher interest rates typically diminish the appeal of non-yielding assets like gold.
However, geopolitical tensions and economic uncertainties continue to provide support for gold as a safe-haven asset. Concerns escalated following remarks by the UN Secretary-General about the potential for a “catastrophic” full-scale conflict between Israel and Hezbollah, amidst recent casualties from Israeli airstrikes in Gaza City.
In summary, while US economic strength and Federal Reserve policy stance weigh on gold prices, geopolitical risks may offer short-term support. Investors will closely monitor upcoming economic data releases for further market direction in the days ahead.
