On Thursday, the price of gold (XAU/USD) extended its decline, dropping over a percentage point to trade in the $2,370s. This decrease mirrors broader losses across stock and commodity markets, driven by global economic growth concerns.
Despite its reputation as a safe-haven asset, gold’s downturn can be attributed to technical selling pressures. Analysts anticipated a corrective phase within its trading range, prompting investors to offload positions. Moreover, the release of mildly favorable preliminary data from the US S&P Global Purchasing Managers Index (PMI) for July likely contributed to dampening fears of “stagflation” — a combination of economic stagnation and high inflation, typically bullish for gold.
According to the latest data, the S&P Global Composite PMI rose to 55 in July from 54.8 in June. However, the Manufacturing PMI declined to 49.5 from 51.6, while the Services PMI improved to 56.0 from 55.3. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, interpreted these figures as signaling a “Goldilocks” scenario at the beginning of the third quarter, where economic growth remains robust while inflationary pressures ease.
The decline in gold prices comes despite expectations of multiple interest rate cuts by the Federal Reserve (Fed) later this year. Lower interest rates generally enhance the appeal of non-interest-bearing assets such as gold.
Investors are now closely watching upcoming US economic indicators for insights into the Fed’s future monetary policy decisions. Key releases include the advanced US Q2 Gross Domestic Product (GDP) growth data and the Personal Consumption Expenditures (PCE) Price Index report for June.
Meanwhile, a decline in US bond yields, partly due to adjustments in the “Trump trade,” has provided some support to gold prices. Recent polls indicating potential electoral gains for US Vice President Kamala Harris over former President Donald Trump suggest a possibly less inflationary economic outlook if such a scenario materializes.
Additionally, expectations of increased physical demand from India, following a significant reduction in the country’s gold import tax, are anticipated to bolster gold prices. India, as the world’s second-largest gold consumer, plays a pivotal role in global demand dynamics.
Looking ahead, gold is also expected to benefit from long-term geopolitical factors, including discussions among BRICS+ nations to establish a gold-backed alternative to the US Dollar as the global reserve currency. This initiative aims to mitigate US Dollar leverage in international diplomacy and sanctions, potentially increasing gold’s appeal as a strategic asset.
While facing short-term technical pressures and varying economic indicators, gold’s role as a hedge against economic uncertainties and geopolitical shifts remains a pivotal factor influencing its market trajectory.
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