Gold price made a U-turn in the second half of the week and dropped toward $1,950 after rising above $1,980 as upbeat data releases from the US pushed back against market expectations for a no-change in Federal Reserve policy rate for the rest of the year. XAU/USD, however, erased a large portion of its weekly losses on Friday as the US Dollar (USD) lost its appeal. July jobs report from the US could trigger the next big action in XAU/USD next week.
What happened last week?
Markets started the week in a quiet manner as participants refrained from taking large positions ahead of the Fed’s policy announcements. As the S&P Global PMI surveys showed that the US economy remained in a better shape than the Eurozone and the UK economy in June, the USD captured capital outflows out of the Euro and Pound Sterling. In turn, XAU/USD stayed under modest bearish pressure.
On Thursday, however, the USD staged an impressive comeback, and the 10-year US Treasury bond yield surged above 4% following robust data releases from the US. Real Gross Domestic Product (GDP) of the US expanded at an annual rate of 2.4% in the second quarter, surpassing the market expectation for a growth of 1.8% by a wide margin. Additionally, Durable Goods Orders rose 4.7% in June, and weekly Initial Jobless Claims declined to 221,000 from 228,000. Investor sentiment quickly changed after the US data and markets reassessed the Fed’s rate outlook because Powell also said “stronger growth over time could add to inflation and may require a policy response” on Wednesday. Consequently, Gold price fell below $1,950 and erased all the post-Fed gains on Thursday.
Inflation in the US, as measured by the change in Personal Consumption Expenditures (PCE) Price Index, fell to 3% on a yearly basis in June from 3.8% in May, the US Bureau of Economic Analysis reported on Friday. Annual Core PCE Price Index, the Fed’s preferred gauge of inflation, grew by 4.1%, down from 4.6% in May. These data caused US T-bond yields to retreat ahead of the weekend and helped XAU/USD to retrace a portion of its weekly decline in the American session on Friday.
Next week
NBS Manufacturing PMI and Non-Manufacturing PMI data will be released from China, the world’s biggest consumer of Gold, in the early Asian session on Monday. A reading above 50 in Manufacturing PMI could help XAU/USD to start the week on a firm footing.
On Tuesday, the ISM Manufacturing PMI and JOLTS Job Openings data will be featured in the US economic docket. ISM Manufacturing PMI came in below 50 for the eighth straight month in June. Unless there is a significant decline toward 40, it shouldn’t come as a surprise if the PMI survey shows ongoing contraction in the manufacturing sector’s economic activity.
In his prepared remarks, Powell reiterated that labor demand was still substantially exceeding labor supply. A reading close to 10 million in JOLTS data could reaffirm tight labor market conditions and feed into hawkish Fed bets, causing XAU/USD to come under bearish pressure.
