Gold surges amid weaker US data, increased rate cut bets

Gold has seen a significant increase in value as weak US data and a change in tone from Federal Reserve Chairman Jerome Powell have increased bets that the Fed will lower interest rates earlier than previously expected. Lower interest rates are positive for Gold as they reduce the opportunity cost of holding the non-interest-bearing asset.

The weak US data included the US ISM Services Purchasing Managers Index (PMI), which revealed a slowdown in the sector, which has historically been a major driver of hot inflation. The June reading showed a fall to 48.8 from 53.8 in May, well below the consensus estimate of 52.5. The Services Prices Paid component remained in expansion territory at 56.3, still lower than the 58.1 in May.

US Jobs data was also sub-par, with US Initial Jobless Claims rising 238,000 in the week ending June 29, and Continuing Claims standing at their highest since November 2021. ADP Employment Change showed a rise of 150,000 in June, below May’s figure and the 160,000 forecast by economists.

Gold is seeing further gains from broader, geopolitical, and macro factors. The ongoing conflicts in the Middle East and Ukraine, as well as a political lurch right in Europe, are increasing the number of investors opting to store their wealth in Gold. In the US, the Supreme Court’s decision to grant former US President Donald Trump partial immunity over allegations he incited the uprising following his 2020 defeat, combined with question marks over President Joe Biden fitness for office, have increased the chances of a second Trump presidency materializing, which would further destabilize global security and increase demand for Gold.

Finally, the expansion of the BRICS trading bloc and its expressed aim to de-dollarize global trade has also increased demand for Gold, which is viewed as the most realistic replacement for countries denied access to Dollar-denominated markets. Gold has pierced through and closed above the 50-day SMA, indicating a major bullish shift in its technical profile, further invalidating the Head and Shoulders (H&S) topping pattern that looked like it was completing.

Gold has successfully closed above the 50-day Simple Moving Average (SMA), which has been capping its gains for several days, further enhancing the outlook for the Yellow Metal from a technical perspective.