Despite escalating geopolitical tensions and mounting fears of a global economic slowdown, the price of gold (XAU/USD) has exhibited notable weakness in recent trading sessions. The turmoil in the Middle East has intensified, with Iran-backed Hezbollah launching missiles at Israel in response to the assassination of a Hamas leader by an Israeli airstrike in Tehran. Historically, such geopolitical unrest has typically boosted gold’s status as a safe-haven asset.
Adding to the pressure on gold prices is a challenging global demand environment exacerbated by central banks implementing higher interest rates. China, the world’s second-largest economy, is grappling with weakened demand both domestically and internationally, as reflected in the contraction of the Caixin Manufacturing PMI to 49.8 in July. Similarly, the Eurozone’s largest economy is experiencing demand issues, prompting the German government to introduce tax relief measures for individuals and businesses. Additionally, concerns about a slowdown in the United States have further dampened market sentiment.
Despite these headwinds, there is a glimmer of hope on the horizon with the upbeat US ISM Services PMI data for July expected to offer some respite to global markets amid apprehensions of a US economic slowdown. The latest PMI report indicates an expansion in services sector activities, surpassing expectations by rising to 51.4 from the previous month’s contraction to 48.8. This positive development may provide a temporary reprieve in the face of broader economic uncertainties and market volatility.
