Gold prices fall as weak US data boosts the US dollar

• Gold prices fall despite a stronger US dollar amid signs of an economic slowdown.
• US ISM Manufacturing PMI Remains in Contraction; improving employment sub-components provide some relief to the market.
• Despite a dip in 10-year Treasury yields to 3.84%, gold is only briefly recovering after falling to $2,473.

Gold prices fell during the North American session as traders returned to their desks after the Labor Day holiday. Data from the United States (US) suggested trading activity contracted, although traders bought the greenback. XAU/USD is trading at $2,490, down 0.34%.

Earlier, the Institute for Supply Management (ISM) revealed that the August manufacturing PMI remained below the 50-line contraction/expansion level, an indication of an economic slowdown. Despite this, an employment subcomponent of the report improved slightly.

This is a relief to Federal Reserve (Fed) officials, who have remained concerned about the weakness of the labor market. Fed Chairman Jerome Powell said in a speech in Jackson Hole that employment risks are tilted to the upside.

Bullion prices ignored the drop in US Treasury yields but recovered after touching a low of $2,473. The US 10-year note is yielding 3.84%, down eight basis points after the ISM report.

According to the CME FedWatch tool, markets have a 65% chance that the Fed will cut its rate by 25 bps at its next meeting in September. This will be a headwind for the Greenback and a tailwind for the non-yielding metal, which is expected to rise moderately as 35% of traders have positioned themselves for a 50bps cut.

“If the US jobs report is significantly weaker, speculation about a US recession and faster rate cuts will resurface, further supporting gold,” analysts at Commerzbank noted.

The US economic file will be busy this week with the release of JOLTS jobs, ADP national labor change and non-farm payrolls (NFP) figures.

Daily Market Reasons: Gold traders await busy US economic calendar

• The ISM Manufacturing PMI for August improved from 46.8 to 47.2, below estimates of 47.5.
• July JOLTS job openings are expected at 8.10 million, down from 8.184 million in June.
• Private employment, revealed by the ADP National Employment Change report, is expected to increase from 122,000 in July to 150,000 in August.
• August NFP figures are expected to rise from 114K to 163K, while the unemployment rate could fall to a consensus estimate of 4.3% to 4.2%.
• The December 2024 Chicago Board of Trade (CBOT) fed funds rate futures contract indicates that investors are eyeing 98 basis points for Fed easing this year.

Technical Outlook: The price of gold is set to fall further below $2,500

The price of gold is biased to the upside, even though the momentum has shifted in favor of the sellers and opened the door for a drop to $2,470. The relative resistance index (RSI) suggests that buyers are in charge, but in the short term the yellow metal could weaken.

In this case, if XAU/USD breaks below $2,500, the next support would be the August 22 low at $2,470. Once broken, the next stop would be the confluence of the August 15 low and the 50-day simple moving average (SMA) near the $2,427-$2,431 area.

Conversely, if XAU/USD stays above $2,500, the next resistance would be the all-time high, and the next resistance would be the $2,550 threshold.