Spot Gold Experiences Volatile Swings Amid Economic Concerns

In a volatile trading session on Thursday, August 1, spot gold prices experienced significant fluctuations during the New York session. Prices initially dropped sharply from above $2,460 per ounce to below $2,435 per ounce. Earlier in the day, during the European session, gold prices reached an intraday low of $2,430.12 per ounce.

The New York session saw gold prices rise sharply to an intraday high of $2,462.29 per ounce, but they quickly fell again to as low as $2,434.72 per ounce. By the end of the session, spot gold closed nearly unchanged from the previous day's close at $2,445.84 per ounce.

Analysts attribute the volatility to fears of a U.S. recession, which strengthened the dollar and led to a significant decline in U.S. stocks. FXStreet analyst Christian Borjon Valencia noted that the dollar gained strength following U.S. data that showed a contraction in manufacturing activity and highlighted weakness in the labor market. The Institute for Supply Management (ISM) reported that manufacturing activity fell to recessionary levels in July, the lowest since December 2023. This has raised concerns about a potential hard landing for the U.S. economy, as reflected in the sharp decline in U.S. stocks and Treasury yields. Investors sought the U.S. dollar for its safe-haven status amid these uncertainties.

Despite gold prices retreating from their highs, tensions in the Middle East continue to support them. Recent geopolitical events, including an attack by Hezbollah on Israel and subsequent retaliations by Israel, have kept the market on edge.

U.S. stocks experienced a sharp decline on Thursday, with the Dow falling about 500 points and the Nasdaq dropping over 400 points. The ISM manufacturing index fell to 46.8 in July, indicating a contraction in industry activity. Initial jobless claims rose by 14,000 to 249,000, signaling a slowdown in the labor market. The CME's FedWatch tool suggests the Federal Reserve may cut interest rates by 25 basis points at its September meeting, with a total of 75 basis points expected by the end of the year.

Valencia notes that while the uptrend in gold prices remains intact, there is significant resistance near weekly highs, which could lead to a pullback. The Relative Strength Index (RSI) shows fading buying momentum, suggesting a potential correction in gold prices. A drop below $2,400 per ounce could push prices towards the July 30 low of $2,376 per ounce. If prices fall below the 50-day moving average of $2,362 per ounce, further declines could target the 100-day moving average of $2,334 per ounce.

Conversely, if gold prices rise above $2,450 per ounce and challenge the day's high of $2,462 per ounce, the next target would be the all-time high of $2,483 per ounce, followed by the psychological barrier of $2,500 per ounce.