- Gold Price is set to finish the week up by almost 1%, snapping five weeks of losses.
- Investors’ recession fears re-emerged on weak EU and US PMI data.
- The US 2s-10s yield curve inversion extended for 14 straight days.
Gold Price rises for the second consecutive day after tumbling to a fresh multi-month year low on Thursday, at around $1681, rebounding sharply and hitting a weekly high at $1720.24. Nevertheless, gold extended its gains on Friday and reached a fresh weekly high at $1739.27, but faltered to reclaim the crucial $1750 figure, opening the door for a fall to current price levels. At the time of writing, XAUUSD is trading at $1723.62
Investors’ mood shifted sour on companies’ earnings and recession worries
Sentiment turned negative just two hours after the NY ringing bell. US companies missing earnings and weaker than estimated US PMIs data reignited investors’ recession fears. The greenback rose, bonds jumped, and yields fell, led by the 10-year benchmark note yielding 2.792%, down eight basis points.
On Friday, S&P Global reported worldwide PMIs, with readings showing the global economy is slowing down. Particularly the Euro area and US readings were dismal, increasing the likelihood of a recession. The EU S&P Global Manufacturing and Composite PMIs for July dropped 49.6 and 49.4, respectively. In the case of the US, the Services and Composite Indices were the main drivers leading to the downside, falling to 47 and 47.6, respectively. That said, traders seeking safety sent gold prices towards their weekly high, around $1740.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said about US data, “The preliminary PMI data for July point to a worrying deterioration in the economy. Excluding pandemic lockdown months, output is falling at a rate not seen since 2009 amid the global financial crisis, with the survey data indicative of GDP falling at an annualised rate of approximately 1%.”
Consequently, the yield curve inversion in the US 2s-10s persists negative for 14 consecutive days and sits at -0.211%, while the US 3-month to 10-year spread flattened to 0.337%.
In the week ahead, the US Federal Reserve is expected to hike rates by 75 bps, lifting the Federal funds rate (FFR) to 2.50%. Gold traders should be aware that there will be no economic projections in the July meeting, which will be revealed in the September reunion.
Week ahead
Alongside the Federal Reserve Open Market Committee (FOMC) monetary policy decision, the US economic docket will feature US inflation data, the CB Consumer Confidence, and Q2 Gross Domestic Product on its advance reading.