XAU/USD pulls back before resuming uptrend, focus shifts to US data

• Gold price extends corrective decline early Thursday, challenging $2,500.
• The US dollar bounces back with US Treasury yields after Fed minutes-induced sell-off.
• All eyes are on preliminary US PMI data on Thursday ahead of Fed Chairman Jerome Powell’s speech on Friday.
• Gold price pullback to pave way to new highs as daily technical setup favors buyers.

The price of gold is trying to build on the previous correction in the Asian session on Thursday, challenging the key level of $2,500. Gold traders resort to profit-taking ahead of S&P Global’s preliminary US business data, which could shed new light on the outlook for US Federal Reserve (Fed) interest rates in the countdown to Friday’s appearance by Chairman Jerome Powell at Jackson Hole. .

Gold price awaits US PMI data for further increase in purchases

In addition to profit-sapping, gold prices are also bearing the brunt of a broad rally in the US dollar (USD) on Thursday morning as US Treasury yields rise. The greenback capitalizes on a negative shift in risk sentiment amid China’s looming economic concerns and geopolitical risks in the Middle East.

Markets also remain cautious on lingering US recession fears as they anticipate S&P Global Manufacturing and Services PMI data later in the North American session. In addition, they are adjusting their positions ahead of Friday’s key risk – Fed Chairman Jerome Powell’s speech. Powell could use the Jackson Hole address to double down on the Fed’s accommodative stance, recently highlighted by the Minutes of its July policy meeting released on Wednesday.

Most policymakers felt that “if the data continues to emerge as expected, it would probably be appropriate to ease the policy at the next meeting,” the Minutes said. In addition, the minutes state that many of them would have even been willing to reduce borrowing costs in the July meeting itself.

The Fed’s downright dovish minutes wreaked havoc on the US dollar, while boosting demand for US government bonds and the price of non-interest-bearing gold. This helped the price of gold recover losses and settle modestly above $2,500 on Wednesday.

Earlier, the US Labor Department said non-farm payrolls (NFP) for April 2023-March 2024 were cut by 818,000. The revision represented a total downward change of about 0.5 percent, meaning monthly job gains in the period averaged about 174,000, compared with the previously reported figure of 242,000.

March’s benchmark NFP revision added to September Fed rate cut bets, further weighing on the greenback overall.

Markets are currently pricing in a 35% chance of a 50 basis point (bps) cut at the September 17-18 Fed meeting and a 65% chance of a 25 basis point cut, according to FedWatch’s CME Group.

All eyes also remain on Fed Chairman Jerome Powell’s keynote speech in Jackson Hole on Friday for any indication of the likely size of a cut next month and whether borrowing costs will be cut at each policy meeting subsequent.

Meanwhile, the drop in gold prices could remain muted amid lingering Middle East tensions between Hamas and Israel, after the latter refused to withdraw its troops from the Philadelphi Corridor on the Egypt-Gaza border, a Prime Minister Benjamin Netanyahu’s office said. Wednesday.

Gold Price Technical Analysis: Daily Chart

The near-term technical outlook for the gold price remains constructive as buyers refuse to give up amid a symmetrical triangle breakout in play and an upbeat 14-day Relative Strength Index (RSI).

The 14-day RSI is lower but remains well above the 50 level, currently near 63, suggesting that the gold price remains a buy-the-dips trading opportunity.

If the gold price pullback ignites, immediate support is seen at the 2-month low of $2,486.

A breach of the latter will require a test of the triangular resistance turned support, now at $2,467. Further south, the psychological barrier of $2,450 will come to the rescue of Gold bullies.

Conversely, if gold buyers recover the record level of $2,532, the next relevant target is seen at the $2,550 level.

Acceptance above the latter could challenge the round level of $2,600 en route to the triangle target measured at $2,660.