US Economic Beige Book: Moderate Economic Growth, Will Gold Fall Further?

On Wednesday, the release of the US ISM non-manufacturing PMI and the Economic Beige Book once again caused a dip in gold prices.

The data shows that the US non-manufacturing PMI for August recorded a value of 54.5, well above market expectations of 52.5 and the previous value of 52.7, reaching a six-month high.

Some analysts believe that the unexpectedly strong US non-manufacturing PMI indicates sustained consumer demand and overall strength in the US economy. As the non-manufacturing sector is a significant component of the economy, its ability to provide continued job opportunities may contribute to a steady and soft landing for the US economy, avoiding a recession.

From another perspective, this seemingly increases concerns in the market about the difficulty of reducing inflation, leading to an expectation of higher interest rates by the Federal Reserve over an extended period. Following the data release, US bond yields rose, and gold prices fell in response.

It is worth mentioning that the disclosure of the US Economic Beige Book on Wednesday indicated moderate economic growth and some easing of inflationary pressures.

The report shows that the US economy experienced moderate growth in July and August. Consumer conditions remained robust, with spending on tourism and other services exceeding expectations, mainly driven by a surge in suppressed demand for travel due to the COVID-19 pandemic. However, demand for other non-essential goods has slowed down.

Furthermore, combining last week's US economic data, there is a cooling demand in the labor market, and wage growth has hit a new low since early 2022. Although non-farm payrolls exceeded expectations, the rising unemployment rate suggests moderate economic growth and a slowdown in the labor market, which reduces safe-haven demand and is unfavorable for gold price increases. However, considering the slowdown in the labor market and some easing of inflationary pressures, the Federal Reserve may not raise interest rates in September. While this may limit the potential for a rise in the US dollar, the long-term high interest rates still provide support and overall do not bode well for gold.

From a technical perspective, gold is currently seeking crucial support at the 200-day MA around $1914. Resistance levels are at $1929 and $1940, while support levels are at $1914 and $1903.

Source: Investing.com