Gold surges around $1770 on US PMI data

Gold prices advance on falling US Treasury yields and US dollar weakness. US equities rise, despite cooling manufacturing data, illustrating Fed actions are being felt. At the time of writing, gold is trading at $1770.5.

Fed policymakers pushed back against deacceleration of interest rate hikes, according to the market’s reaction. If buyers reclaim $1800, the bias shift to neutral-upwards; otherwise, a leg down to $1730 is viable.

Gold price climbs for the fourth consecutive day, extending its ongoing recovery. The US dollar remains heavy, undermined by falling US Treasury yields, as investors assessed that the Federal Reserve might hike rates, but not as aggressive as expected. At the time of writing, XAUUSD is trading at $1771.15, up 0.32%.

US ISM held stubbornly to expansionary territory, price index down from 78.5 to 60. European and US equities do fluctuate, reflecting a fragile sentiment. Meanwhile, tensions between China and the US, with US House Speaker Pelosi visiting Taiwan, increased military activity on China’s side. That dragged European equities lower, while traders are optimistic that the Fed’s “dovish” pivot, as perceived by the markets, was reinforced by weaker US ISM PMI readings.

The Institute for Supply Management reported that July’s Manufacturing PMI clung to expansionary territory, beating the estimations. Nevertheless, it trailed June’s reading, while some components, like new orders, dropped while the price index plunged, showing signs that higher interest rates are beginning to be felt.

Minnesota Fed President Neil Kashkari commented that he was surprised by the markets’ reaction that the Fed would soon begin to “back off” and said that 50 bps rate hikes at upcoming meetings would be reasonable. He added that higher core inflation readings would push him for another 75 bps increase.

The Gold Index soared to fresh four-week highs around $1775.39, bolstered by broad US dollar weakness. The US Dollar Index (DXY), a gauge of the US dollar’s value versus six rival currencies, falls towards 105.427, down 0.38%, undermined by US Treasuries tumbling across the yield curve.

Real yields, as depicted by the US 10-year Treasury Inflation-Protected Securities (TIPS) bond yield, sit at 0.109%, down from YTD highs of 0.893%, a headwind for higher gold prices. The US calendar will unveil the JOLTs Job Openings, and Fed speaking with Chicago Fed President Charles Evans will cross the wires.

Technically, gold is still neutral biased, despite rising above the $1750 figure, as buyers set their eyes to May’s 16 low shifted resistance at $1787.03. If gold buyers reclaim the previously mentioned, that will open the door for a test of the 100-day EMA at $1795.16, followed by the $1800 mark. A breach of the said level would move the bias to neutral upwards. Otherwise, correction towards the 20-day EMA at $1730.84 will be potential.