Gold rebounds after US Manufacturing ISM data

Gold recovers from three-week lows after negative US ISM Manufacturing data and fall in US yields.

Asian demand and cooling inflation expectations further support Gold’s bounce.
Technicals remain bearish after a breakout from a Bear Flag.
Gold (XAU/USD) recovers to trade in the $2,340s on Monday after the release of US ISM Manufacturing PMI data shows a greater-than-expected contraction in May, increasing bets the Federal Reserve (Fed) will lower interest rates as the US economy cools.

The ISM Manufacturing PMI contracted to 48.7 in May, which was below the 49.6 expected and 49.2 in April, according to data from the Institute of Supply Management (ISM)., released on Monday The data led to a increase in market-based probabilities the Fed will cut interest rates in September. Prior to the release, the CME FedWatch tool had given the chances of a September cut about 55% and after the release that had risen to 59%.


The expectation of lower interest rates is positive for Gold as it reduces the opportunity cost of holding the precious metal.

Gold to be supported during the summer
Gold is likely to be supported during the summer as investors weigh the odds of future interest rate moves from major central banks and Asian demand stays bouyant, according to Bart Malek, Head of Commodity Strategy at TD Securities.

While Gold tumbled from all-time highs in April after the Fed signaled it would be delaying expected interest-rate cuts indefinitely, it has found a floor as speculators have short-covered following a poor run of US data including Friday’s core PCE undershoot. Thus the metal is both capped and supported, suggests the strategist.

Considering that the Fed’s favorite inflation measure is showing a consistent move lower, the Gold market should be well supported through the summer.

But, since policy makers will need more proof that their economic modeling is reflecting reality and that rates are indeed restrictive sufficiently to control inflation, no large rally is expected for now. Gold moves and investor positioning will very much be data dependent.