The price of Gold has been showing unexpected volatility in the markets. This volatility was observed despite the European markets remaining closed for labor day. The price of Gold touched the $2000 mark before meeting resistance. The US macroeconomic data was better than expected and this allowed the resistance to bring the price of gold down.
Macroeconomic indicators include ISM’s manufacturing PMI which was also higher than expected. It was doing better at 47.1, higher than the earlier forecast of 46.8. The goods production sector contracted for the sixth consecutive month. Employment and prices paid components of the survey rose to 50.2 and 53.2. This led to a higher demand for the US dollar and treasury yields.
The decisions taken by the Federal Reserves have to be seen against this backdrop. An uptick in prices paid components is indicative of rebound inflation. This could influence the Fed's decision to further increase the interest rates.
With another 25 basis point increase the interest rate could go from 5% to 5.25%, making it the highest in 17 years. Since this increase has already been factored into the equations, the investors are now focusing on guidance. If the Federal Reserves indicate that they are not imminently looking to step on the brakes, yields will continue to rise and precious metals will perform poorly. If the central bank decides to press pause, the price of Gold could increase again.
The bulls might be able to break through the resistance line at $2000 and even take gold to an all-time high of $2080.
The downside is, if the gold fails to find support at $1,975, it could slide lower. The next support line will be a 50-day simple moving average.
