Gold Market Sees Sharp Decline Amid Profit-Taking and Strong US GDP Data
On Thursday, the gold market experienced a significant sell-off, with spot gold prices dropping nearly $33 to fall below $2,360 per ounce. Spot gold closed the day down $32.61, or 1.36%, at $2,364.25 per ounce, after hitting a nearly two-week low of $2,353.05 during the New York session.
Analysts attribute the plummet in gold prices primarily to profit-taking by investors capitalizing on the recent surge in gold prices. The gold market has seen a sharp rise recently, leading to a dual effect of long settlement and profit-taking, which exacerbated the strength of the sell-off. Additionally, strong US GDP data released on Thursday spurred a stronger US dollar, which further pressured gold prices.
Christian Borjon Valencia, an analyst at FXStreet, noted that gold prices fell by over 1% following the robust US GDP data, with traders now focusing on the upcoming US PCE inflation data.
The US Bureau of Economic Analysis reported that real GDP rose by a preliminary 2.8% annualized quarter-on-quarter in the second quarter, surpassing the expected 2% and the previous quarter's 1.4%. Analysts highlighted that the faster-than-expected economic growth indicates firm demand despite rising borrowing costs.
The preliminary annualized quarter-on-quarter core PCE price index in the US rose 2.9% in the second quarter, higher than the expected 2.7%, but lower than the previous quarter's 3.7%. The stronger dollar, influenced by the positive economic data, weighed on gold, causing it to plunge to a two-week low.
Jake Hanley, a portfolio specialist at Teucrium Trading, suggested that the strong GDP might reduce the urgency for the Federal Reserve to cut interest rates, potentially prolonging high-interest rates, which is detrimental to gold.
Gold had reached a new all-time high of $2,483.60 per ounce last week amid growing optimism that the Fed would cut rates in September. However, the recent drop is primarily due to profit-taking. Since reaching the record high on July 17, spot gold prices have fallen about 5%.
Kelvin Wong, a senior market analyst at OANDA Asia Pacific, mentioned that the fundamental pressure on gold prices is minimal. The recent movements seem to be driven by profit-taking, and from a technical perspective, gold prices might continue to decline.
Edward Meir, an analyst at Marex, pointed out that weakness in US stocks triggered some profit-taking in the gold market. Similarly, Fawad Razaqzada, an analyst at City Index and Forex, noted that the sudden fall in risky assets has led investors to cash out from the gold market.
Gold traders are now awaiting the latest Personal Consumption Expenditure (PCE) price index, which is set to be released on Friday. This data is expected to trigger sharp market volatility and could provide insights into the Fed's interest rate path. The PCE price index for June is anticipated to rise by 0.1% month-on-month, following a flat rate in May, with an annualized increase expected at 2.5%.
Kelvin Wong stated that if the PCE data shows slowing inflation, the Fed might cut interest rates in September, potentially causing gold prices to rebound.
Following the recent crash, gold prices could continue to move lower, according to Christian Borjon Valencia. If gold falls below the 50-day moving average of $2,359 per ounce, the next support level would be the July 25 low of $2,353 per ounce. Further declines could see prices dip below the 100-day moving average of $2,324 per ounce and potentially reach $2,300 per ounce. Conversely, gold buyers would need to breach the $2,400 per ounce level to test the recent highs around $2,483 per ounce.
