In the early hours of Tuesday’s European trading day, gold (XAU/USD) prices continued their descent below $1,773.00, breaking below a resistance level that has been in place for over three months. However, during the past five days, gold has risen to its highest levels since July 5.
The early-morning upswing in the metal was likely driven by the general dollar’s drop and Treasury rates. Following this, the XAU/USD exchange rate seems to have been impacted by news relating to China and mounting concerns of an economic slump.
In spite of this, market sentiment is dampened by the fact that US House Secretary Nancy Pelosi is now in Taiwan, and because of the potential challenges for Chinese chipmakers resulting from the U.S. considering prohibiting shipments of American chipmaking equipment. Similarly, a report from China’s state-run media might suggest that the dragon kingdom is getting ready to conduct a military drill in the South China Sea region of Bohai.
The market’s risk appetite is further dampened by Bloomberg’s claim that Beijing’s GDP has no defined limitations. Media reports cite “people familiar with the matter” who say that “China’s senior leaders advised government officials last week that this year’s economic growth target of “around 5.5 percent” should serve as guidance rather than required ambition.”
China is a major consumer of gold, so negative news about the country might have an effect on the price of the precious metal.
In other news, the recent weak US PMIs reflect the second quarter US GDP that was released last week, illustrating economic worry. In addition, Fed Chair Jerome Powell’s ominous hints that the hawks are losing steam might dampen enthusiasm.
The market’s sentiment is reflected in the slight declines in Asia-Pacific stocks and US stock futures. The gold bears are under pressure from the declining value of the US dollar, while the yield on 10-year US government bonds has fallen by 5.5 basis points (bps) to 2.55 percent at the latest. However, the US Dollar Index (DXY) maintained the monthly low before recovering from 105.00.
Intraday gold traders in the future will need to pay close attention to news about China and the recession, as well as the comments of Chicago Fed President Charles L. Evans and Federal Reserve Bank of St. Louis President James Bullard.