Gold Prices Drop Amid US Economic Data and Dollar Strength

By Priyanka Jun 22, 2024
Gold Prices Drop Amid US Economic Data and Dollar Strength

Gold Stumbles as US Economic Data Fuels Rate Cut Speculation

Gold prices took a tumble on Friday, driven by a combination of mixed economic data from the United States (US) and a rising US Dollar.

Strong PMI Data Bolsters Dollar

The US economy continues to send mixed signals about its health. On the positive side, S&P Global’s Purchasing Managers Index (PMI) readings for June surpassed estimates and topped May’s data. This news boosted the US Dollar, with the US Dollar Index (DXY) rising 0.14% to 105.80.

Central Banks Continue Gold Purchases

Despite the recent price drop, central banks remain major buyers of Gold. World Gold Council data shows that they added 1,136 tonnes worth around $70 billion to their reserves in 2022. Emerging economies such as China, India, and Turkey are among the most active buyers.

Gold’s Correlation with the Dollar and Risk Assets

Gold has an inverse correlation with the US Dollar. When the Dollar depreciates, Gold tends to rise, providing investors and central banks with a safe haven in turbulent times. Gold is also inversely correlated with risk assets, so a rally in the stock market can weaken Gold prices.

Factors Influencing Gold Price

The price of Gold is influenced by various factors, including:

* Geopolitical instability: Conflicts or fears of recession can drive demand for Gold.
* Interest rates: Lower interest rates tend to support Gold prices, while higher rates can weigh on them.
* Inflation: Gold is often considered a hedge against inflation.
* US Dollar: The price of Gold is inversely correlated with the value of the US Dollar.

Technical Analysis

Gold’s downtrend resumed on Friday, falling below the Head-and-Shoulders pattern’s neckline. If Gold fails to reclaim $2,350, it could face further losses, with support levels at $2,300 and $2,277. Conversely, a break above resistance at $2,387 could signal a potential rally.

Outlook for Gold

The outlook for Gold remains mixed. The Fed’s stance on interest rates, the strength of the US Dollar, and global geopolitical developments will continue to influence its price. In the short term, the metal is likely to remain under pressure from a hawkish Fed and a strong Dollar. However, medium to long-term prospects remain bullish due to central bank buying and its status as a safe-haven asset.

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