Multiple Data Points Indicate Moderate Growth in the US Economy, Where Does Gold Head?

Gold may consolidate or trade within a range. Resistance levels at $1945 and $1980, support levels at $1903 and $1885. The moderate growth of the US economy in July and August could be bearish for gold. Additionally, based on CFTC positioning data and technical analysis, the medium to long-term downtrend in gold remains unchanged, with short-term consolidation expected.

Last week (Sep 3-10), precious metals experienced a general decline, with gold falling by 1.1% and silver plummeting by 4.5%. Gold reversed its previous two weeks of rebounding and consolidating as it further declined due to factors such as positive core PCE price index, ISM Services PMI data, and hawkish signals from the Federal Reserve.

Source: MacroMicro - Percentage Change of Major Precious Metal futures in Sep 4-10th 

On September 6, local time, data released by the US ISM showed that the August ISM Services PMI was 54.5, significantly surpassing market expectations of 52.5 and the previous value of 52.7, reaching a new high since February this year.

Analysts believe that the better-than-expected ISM Services PMI indicates continued strong consumer demand and overall economic strength in the United States. As the service sector constitutes a significant part of the economy, it can provide more employment opportunities and potentially lead to a soft landing for the US economy.

Mitrade Analyst 

The better-than-expected ISM Services PMI, combined with recent releases of non-farm payroll data and favorable core PCE data, suggests that the US economy is moderating, increasing market expectations of a soft landing. However, it also raises concerns about persistent inflation, and the market generally expects higher interest rates to be maintained in the long term, providing support for the US dollar and posing challenges for gold's upward movement.

On Sep 6, the Beige Book report revealed that the US economy continued to experience moderate growth in July and August. Consumer conditions remained robust, with stronger-than-expected spending on travel and other services as pent-up demand from the pandemic was released. However, demand for nonessential goods showed some slowdown. Additionally, the labor market also experienced a slight slowdown, with many companies expecting a deceleration in wage growth in the short term. The core Personal Consumption Expenditures Price Index (PCE) rose by 0.2% for the second consecutive month in July, lower than the earlier increase of over 0.3%.

Mitrade Analyst 

Recent economic data and signs will increase expectations that the Fed may end its current cycle of interest rate hikes soon, or even not raise rates further this year. Nevertheless, we believe the Fed will make decisions based on the latest economic data. They might pause rate hikes in September or keep them on hold, but the possibility of a rate hike in November cannot be ruled out. Therefore, gold still faces downward pressure in the short term.

On Sep 7th, data released by the State Administration of Foreign Exchange (SAFE) showed that as of the end of August 2023, China's central bank gold reserves reached 696,200 ounces, an increase of 930,000 ounces compared to the previous month. This marks the tenth consecutive monthly increase in China's central bank gold reserves, with a total accumulation of approximately RMB 97.6 billion. Meanwhile, foreign exchange reserves decreased by 1.38% to $44.2 billion as of the end of July, with a total reserve size of $3.1601 trillion.

In the short term, speculative long positions in gold have increased while open interest has decreased among shorts. According to the latest CFTC positioning data from August 30th to September 5th, speculative long positions in gold increased slightly by 14,734 contracts to 138,006 contracts. During the same period, open interest in gold futures saw a minor decrease of 252 contracts to 235,802 contracts for speculative long positions, while short positions decreased by 14,986 contracts. These indications suggest that short-term market investors are adopting a wait-and-see attitude towards the future of gold.

Mitrade Analyst 

In summary, China's increase in gold reserves signifies increased uncertainty regarding the macroeconomic outlook and also undermines the position of the US dollar, which is overall positive for gold. However, the presence of speculative long positions adding to their positions and closing out open interest contracts for profits, along with reduced short positions, indicates a cautious stance among investors towards the future of gold. Gold may experience consolidation or range-bound trading this week.

From a technical perspective, the 60-day MA shows a downward trend. The 14-day RSI value of 51 is below 60. The daily MACD shows the short-term line sticking to the long-term line while the histogram remains above the zero line but decreasing in height. DIFF, DEA, and MACD are all negative, indicating that gold is likely to continue its downward trend with some consolidation.

Resistance levels: $1945, $1980

Support levels: $1903, $1885

Source: Investing.com, Sep 11th Gold Daily Chart

Mitrade Analyst 

Considering the analysis of various indicators, the medium to long-term downtrend in gold remains unchanged, and gold may experience minor consolidation in the short term.

Additionally, investors should pay attention to news and economic data this week, such as the US core inflation rate, consumer price index, and retail sales monthly rate, which may provide guidance for the future direction of gold.