Will the Downward Trend in Gold Continue with the Release of ISM Non-Manufacturing PMI?

Following last week's disappointing economic data, including the July ADP employment figures, revised Q2 GDP annual rate, and August CB consumer confidence index, gold witnessed a three-day consecutive rise. However, this short-lived bullish sentiment was quickly dragged down by the largely expected core PCE price index and better-than-expected non-farm payroll data. The US dollar found support in the short term, causing gold to oscillate downwards, hovering around $1923.

The data revealed that the US July PCE year-on-year growth stood at 3.3%, meeting market expectations and remaining unchanged from the previous value. This marked the highest increase since June 2022. Excluding energy and food prices, the core PCE year-on-year growth for July reached 4.2%, slightly up from the previous month's 4.1% and in line with market expectations.

Furthermore, there was an addition of 187,000 non-farm jobs in August, surpassing the market expectation of 170,000. The previous value was revised down from 187,000 to 157,000.

While the moderate growth in PCE and better-than-expected non-farm data indicate ongoing strong consumer spending and temper concerns of an economic slowdown, it reduced the likelihood of a September interest rate hike by the Federal Reserve, thereby suppressing the upward pressure on the US dollar against gold. It also diminished market worries about an economic recession and lowered safe-haven demand, which in turn exerted downward pressure on gold's rise.

Tonight, the upcoming release of the ISM non-manufacturing PMI in the United States will once again influence short-term movements in the gold market. Market expectations for the August non-manufacturing PMI are around 52.5, slightly lower than the previous value of 52.7. Looking back at this month's ISM manufacturing PMI, which recorded a contraction for the tenth consecutive month with a value of 47.6, although the contraction rate has slightly eased, if the non-manufacturing PMI, which is a larger component of the economy, meets market expectations and falls below the previous value, it indicates a continued slowdown in the expansion of the service sector and persistent concerns about economic recession, which would be positive for gold. Conversely, if it exceeds expectations, it would be negative for gold.

From a technical perspective, gold has been declining since around $2080 in May, with two failed attempts to rebound. It is currently testing a key support level at the 200-day moving average of $1914. If this level is breached, a rebound becomes more difficult, and gold is likely to continue oscillating downward.

Source: Investing.com