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Gold Price Drop May Resume as ISM Data Beckons Fed Action

Gold Price Drop May Resume as ISM Data Beckons Fed Action

Ilya Spivak, Head Strategist, APAC

GOLD PRICE OUTLOOK:

  • Gold prices digesting after Moderna vaccine optimism triggers drop
  • US ISM manufacturing survey eyed with Fed policy outlook in focus
  • Technical positioning hints that selling pressure might have ebbed

Gold prices corrected higher yesterday after touching the lowest level since mid-April in the prior session. That seemed to be triggered by news that the Covid-19 vaccine from Moderna was effective against the powerful Delta variant of the virus now forcing renewed lockdowns in some countries.

That seemed to cool concerns about lasting economic disruption, sustaining speculation that sooner-than-expected monetary tightening will undercut the appeal of non-yielding bullion. Prices have languished since mid-June, when the Fed signaled an upshift in its projected rate hike timeline.

ISM DATA EYED AS FED OUTLOOK REMAINS IN FOCUS

Looking ahead, June’s US ISM manufacturing survey is in focus. It is expected to show that the pace of sector activity growth slowed for a third consecutive month. Analogous Markit PMI data links the cool-off to capacity constraints, including uneven supply chains and labor shortages.

Nevertheless, the expected headline reading at 60.9 would still amount to very strong performance relative to history. The trend average hovers in the 53-55 area. Looking back prior to 2021, the slowdown from March’s nearly 40-year high still marked the fastest manufacturing expansion since mid-2004.

Against this backdrop, inflation has continued to soar. The Markit survey flagged rising raw materials prices driving a record-setting rise in input inflation. What’s more, firms have not shied away from passing on higher costs to consumers, with final charges also hitting a historical peak.

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ISM data that echoes this backdrop may stoke bets on an accelerated hawkish pivot at the Federal Reserve, month-on-month deceleration notwithstanding. That would stand to push front-end yields and the US Dollar upward, punishing gold prices further.

Still, it seems wise to consider that Friday brings the release of June’s official US jobs report. Traders will be keen to gauge payrolls growth and wage inflation, both of which are seen as key inputs into the Fed’s calculus. They may thus withhold directional conviction in the immediate aftermath of the ISM release.

GOLD TECHNICAL ANALYSIS

Gold prices continue to mark time above support in the 1755-65 congestion area but positive RSI divergence warns that downside momentum has ebbed. While this may signal little more than a digestive period, it may also precede an upturn.

Near-term resistance is in the 1797.63-1808.40 zone, with a break above that confirmed on a daily closing basis opening the door for a rise toward 1850. Alternatively, a breach of support may set the stage for a test of the March bottom at 1676.10, with a bit of friction near 1720.80 possible along the way.

Gold price chart - daily

Gold price chart created using TradingView

GOLD TRADING RESOURCES

--- Written by Ilya Spivak, Head Strategist, APAC for DailyFX

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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