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GOLD gains almost 1,3% amid weakening US dollar and improving sentiments across metals market 📈

17:47 3 July 2024

Weaker data from the U.S. economy has raised market expectations for potential interest rate cuts by the Fed. Weakest since May 2020 ISM services reading, signalling contraction (below 50 points) put pressure on the dollar, where the USDIDX index is trading above 0.5% today, and supported precious metals. Silver and gold contracts are trading up 3.5% and 1.4% today, respectively. While gold is gaining on a wave of 'recession fears' after macro data suggested the growing impact of restrictive Fed policies on the economy, silver is further supported by improving sentiment in the industrial metals market, which is also driven by rising Fed rate cuts expectations. In the metals market, we are seeing a more than 2% rally in copper futures, which are supported by falling Chinese stockpiles since early June. Also, zinc and nickel ale rising more than 2% today.

GOLD (D1 interval)

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Source: xStation5

  • The publication of the ISM PMI indexes from the services sector was a minor disaster. The composite index indicated 48.8 versus more than 53.8 forecasts; the orders and employment components recorded strong declines. 
  • The price sub-index also slipped noticeably, settling to 56.3 from 58.1 in May. Unemployment claims also came in slightly higher than forecast (238,000 vs. 235,000 forecast and 232,000 previously) in both the weekly change and the number of continuing claims.
  • The Challenger report came in slightly lower than before, suggesting a decline in the rate of planned layoffs, but the change in private market employment according to ADP - although it exceeded forecasts came out mixed; Nela Richardson stressed that without the seasonal jump in hospitality employment, the data would have been much weaker.

A series of disappointing data pushed the dollar down nearly 0.5% against a basket of currencies. At the same time, we are seeing pressure on yields in the bond market. The 10-year U.S. bond is down nearly 8 percentage points to 4.35%. U.S. 10-year Treasury bond futures (TNOTE), on the Chicago CBOT, are trading up today, which, as we can see, is being 'topped' by the gold market today.

TNOTE rises today along with gold futures (GOLD, yellow chart) Source: xStation5

Historically, gold has performed much better in the period just after the interest rate cut than the broad US stock market. Hence, the added impetus of belief in a potential acceleration of interest rate cuts is driving investors toward the precious metal. 

The price movements of gold and the S&P500 index during the period of interest rate cuts show gold's tendency to rise during index declines. Source: Bloomberg Finance L.P. 

We are also seeing increases in silver prices, which is trading up nearly 4% today. Silver shows more price volatility than gold, as we see with today's price changes. Additionally, in the longer horizon, silver remains influenced by the increasing demand associated with the progressive electrification in the world. Thus, the metal's demand side, along with weak data from the US, is pushing the metal's price today towards resistance from local June peaks. 

Source: xStation5

This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

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