Price of Gold Fundamental Daily Forecast – Recession Fears Drive Safe-Haven Dollar Higher, Bullion Lower

Gold futures are edging lower on Tuesday after a steep break the previous session shifted momentum to the downside. The market fell as investors ran for protection in U.S. Treasurys and the U.S. Dollar on growing concerns over a global recession. The catalyst behind the trade was weak economic data out of China and a surprise interest rate cut by China’s central bank, which signaled a slowing economy.

At 04:38 GMT, December Comex gold futures are trading $1796.00, down $2.10 or -0.12%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $165.72, down $2.15 or -1.28%.

Besides safe-haven buying, the dollar was also supported by hawkish comments from Federal Reserve officials in response to early signs that U.S. inflation may have peaked. Foreign demand for gold tends to drop when the U.S. Dollar strengthens.

China’s Economy Losing Stream

China’s industrial production and retail sales growth for July came in well below estimates, youth unemployment hit a record high in July, investment into real estate fell at a faster pace in July than June and investment into manufacturing slowed its pace of growth, suggesting that the post-lockdown recovery is losing stream.

In other news that suggests a slowing economy, the People’s Bank of China (PBOC) said it was lowering the rate on 400 billion Yuan ($59.33 billion) of one-year-medium-term lending facility (MLF) loans to some financial institutions by 10 basis points (bps) to 2.75%, from 2.85%.

The rate cut came as a surprise, but it makes sense given that new bank lending in China tumbled more than expected in July while broad credit growth slowed, as fresh COVID flare-ups, worries about jobs and a deepening property crisis made companies and consumers wary of taking on more debt.

The news was enough to spook investors into buying Treasurys and the U.S. Dollar for safe-haven protection, while making gold less attractive.

US Economic Data Came in Surprisingly Weaker

In U.S. economic news, the New York Federal Reserve released the Empire State Manufacturing Index that unexpectedly showed a substantial contraction in regional manufacturing activity in the month of August.

Another report released by the National Association of Home Builders (NAHB) unexpectedly showed a continued deterioration in U.S. homebuilder confidence in August.

Daily Forecast

On Tuesday, traders will look for continuing signs of a softening economy in reports on building permits, housing starts, capacity utilization and industrial production.

If the reports show the economy is deteriorating, we could see a repeat performance of Monday’s price action. Traders concerned about a recession will flock to Treasurys and the U.S. Dollar, putting further pressure on gold prices.

Technically speaking, the main retracement zone at $1798.50 to $1822.60 is the resistance controlling the near-term direction of the market.