Gold demand raises as economic data fall

Author: Ahura Chalki

Tuesday, 02 August 2022 Number of words: 704 Study time: 4 Minutes Views: 600

Gold and stock markets

On Monday, the focus of the economic data was on PMI numbers. Purchasing Manager Index from the most developed economies published. Data shows that the economic slowdown now seems more accurate.

US Markit Manufacturing PMI for July was seen at 52.2, lower than market expectations, and the previous month at 52.3. In addition, the ISM showed that the manufacturing PMI in July recorded 52.8, lower than the previous month of 53.0, even if it was slightly higher than the market expectation of 52.0. From the sub-data point of view, the output index, price payment index, and new orders index fell to 53.5 (previously 54.9), 60.0 (previously 78.5), and 48.0 (previously 49.2). In contrast, the employment and inventory indexes increased slightly to 49.9 (from 47.3) and 57.3 (previously 56.0).

Worries about China Tensions scared the markets. 

Following the observed weaknesses, JOLT's numbers made the warnings more serious on Tuesday.

According to the US Labor Department monthly report, the nationwide number of open positions fell to 10.698 million in June from an upwardly revised 11.303 million in May. While June's employment data showed an increase, the scale of this decline was more exciting and focused, as it shows that hiring freezes or slowdowns were seen over recent weeks.

I should mention that openings are still more than pre-pandemic levels, and there is no doubt.

The 4.2 million quitting jobs, while it is less than 4.3 million in May, still suggests a high level of confidence in people's ability to find better-paying jobs elsewhere. However, the pace of slowdown at the same time slowing in other economic areas makes the economic recession look more serious.

 With current data, there are two different outlooks. Analysts in Bank of America believe that it is too early to say the Fed's policy can shift, mainly due to the fact that the current inflation is still very high. The Fed's quantitative tightening is still minimal. They believe that unless weekly jobless claims exceed 300,000, oil prices fall below $80 a barrel, and the panic index exceeds 50, the probability of a Fed policy shift is low.

On the other hand, there are analysts that if in Friday's July employment report also we can see the same slowing rate that vacancies had, then the market can be confident that the Federal Reserve should reverse this year's interest rate hikes. The consensus expectation for July nonfarm employment is 250,000, which would be the slowest hiring rate this year.

Market risk also decreased with the USVIX chart last seen at 24.66, while earlier today, it increased above 25.80.

US House Speaker Nancy Pelosi headed to Taiwan. USVIX fell a few hours ago due to the increased possibility of cancellation of this trip, but her airplane finally landed there just a few minutes ago. She is the most senior US politician to visit Taiwan in nearly 30 years. This is expected to increase the tensions between the US and China, which is why we should be more worried about the stock markets in the near future. 

The US dollar index has fallen more than 3 percent since July 15 and is now at 106 borders, regaining all yesterday's losses. In the bond market, 10-year and 2-year Treasury yields remained inverted, with the former at 2.69% and the latter at 3.0%. 

As a reaction, Stock markets in China fell over 2% on Beijing's threat that it "would not sit idly by." Later US stock markets ignored this risk at the beginning. However, market emotion is not favorable. 

From the technical point of view, Dow Jones Industrial Average is in a clear uptrend in its daily chart. Price moves above 20 DMA at 31,680, which seems like crucial support. The increasing market volume is also for now supporting this uptrend. In the bigger picture, the primary resistance sits at 34,600, and if the asset can not breathe above this level, a bullish trend is not confirmed. 

Gold and stock markets

Gold's reaction was precisely like that with stock markets. While it was increasing a few hours ago and in the early European market opening, along with the stock market's growth in recent hours, gold lost its support; however, in the bigger picture, from both technical and fundamental points of view, we should expect more support and demand as geopolitical and recession concern getting more accurate.