September 4, 2024
New Delhi, India
Gold prices
Gold prices continued to slide on Wednesday, with XAU/USD trading in the $2,490s as market sentiment remained negative. This downturn followed a global sell-off triggered by disappointing US manufacturing data and concerns over the potential bursting of the Artificial Intelligence (AI) tech bubble.
Key Highlights:
- Market Performance:
- Gold broke below the critical $2,500 level, a bearish sign for the precious metal.
- Prices finished Tuesday down over 0.25%, despite its safe-haven status.
- Investor Positioning:
- Heavy long positioning by Commodity Trading Advisors (CTA) and institutional investors may be preventing a rise in gold prices.
- Overcrowded long positions often hinder upward movement, even when the risk sentiment is negative.
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Impact of Federal Reserve Rate Cut Expectations:
- Interest Rate Cut Prospects:
- Market-based probabilities for a 0.50% interest rate cut by the US Federal Reserve at its September 18 meeting have risen from 31% to 41% following weak US manufacturing PMI data.
- Normally, a larger anticipated rate cut would be bullish for gold, as it reduces the opportunity cost of holding the non-yielding asset.
- Uncertain Outlook:
- Despite the increased probability of a Fed rate cut, gold has not benefited as expected.
Upcoming Economic Data Releases:
- US Employment Metrics:
- Key employment data releases this week could further influence interest rate expectations.
- The US JOLTS Job Openings report is due on Wednesday, with forecasts predicting a decline to 8.1 million in July from 8.184 million in June.
- ADP Employment Change and Jobless Claims data will follow on Thursday, leading up to the main event on Friday — the US Nonfarm Payrolls (NFP). A weaker-than-expected NFP increase could bolster the case for a larger rate cut.
Geopolitical Context:
- Global Tensions:
- No major geopolitical developments have led to increased demand for gold.
- Recent conflicts, such as Russia’s missile attacks on Ukraine and ongoing tensions in Gaza, have not significantly affected gold prices.
Gold’s recent performance reflects complex market dynamics, with negative risk sentiment failing to translate into gains due to crowded long positions and other factors. The upcoming US employment data and Fed’s rate decision remain key factors to watch for potential shifts in the precious metal’s trajectory.
Disclaimer:
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