The gold price slip continues for the third consecutive day as traders navigate the strengthening US Dollar (USD) and rising US Treasury bond yields. On Tuesday’s early European session, the gold price (XAU/USD) trades in negative territory, reflecting the market’s cautious sentiment ahead of key US economic data releases. Despite this downturn, the potential for a rate cut by the US Federal Reserve (Fed) and ongoing geopolitical tensions could help limit further losses for the precious metal.
Key Takeaways
Gold price slip driven by a stronger USD and rising Treasury yields.
Potential Fed rate cut and geopolitical tensions may limit further declines.
Upcoming US PMI and NFP data are crucial for future gold price movements.
Technical analysis suggests key support levels at $2,470 and $2,432.
Gold Price Slip Due to Stronger Dollar and Treasury Yields
Factors Behind the Gold Price Slip
The gold price slip is primarily driven by the robust performance of the USD and increasing Treasury yields, which collectively put downward pressure on gold. The stronger dollar reduces the appeal of gold as it becomes more expensive for holders of other currencies. Concurrently, higher Treasury yields increase the opportunity cost of holding non-yielding assets like gold, leading to a sell-off in the market.
However, traders are also factoring in the possibility of a Fed rate cut in September. The expectation of a 25 basis points (bps) reduction, with a nearly 69% likelihood as indicated by the CME FedWatch tool, is supporting some level of demand for gold. Lower interest rates generally benefit gold by decreasing the opportunity cost associated with holding it.
Upcoming Economic Data and Its Impact on Gold
Looking forward, the market's focus is shifting to the US economic data scheduled for this week. The Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) will be released on Tuesday, providing insights into the manufacturing sector’s performance. This will be followed by the highly anticipated US Nonfarm Payrolls (NFP) data on Friday, which could significantly influence the Fed's decision-making process and, consequently, the gold price.
The ISM Manufacturing PMI is expected to improve slightly to 47.5 in August, up from 46.8 in July, signaling a potential recovery in the sector. Meanwhile, the NFP report is projected to show an addition of 163,000 jobs in August, with the unemployment rate expected to tick down to 4.2%. These figures will be crucial in determining whether the Fed proceeds with the anticipated rate cut, which could either stabilize or further pressure the gold price slip.
Technical Analysis: Key Levels to Watch
From a technical perspective, the gold price slip brings the metal closer to critical support levels. The current trading levels suggest that gold remains vulnerable to further declines, especially if the USD continues to strengthen. The key support level for gold is identified at $2,470, the low of August 22. A break below this level could push prices further down towards the $2,432 mark, which was the low of August 15.
On the upside, gold needs to break through the resistance zone between $2,530 and $2,540 to initiate a potential rally. This zone represents the upper boundary of a five-month-old ascending channel and the all-time high for gold. A decisive breakout above this level could pave the way for a move towards the $2,600 psychological level, though this scenario appears less likely given the current market conditions.
Conclusion
The gold price slip below key support levels highlights the ongoing challenges faced by the precious metal as it contends with a stronger dollar and rising Treasury yields. While the possibility of a Fed rate cut and geopolitical tensions provide some support, the upcoming US economic data will play a critical role in determining the direction of gold prices in the near term. Traders and investors will closely monitor the ISM PMI and NFP reports for cues on the Fed's next move, which could either mitigate or exacerbate the current downward trend in gold.
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