Gold recovers as stagflation fears take hold, Harris’ nomination
NEW YORK (July 24) Gold (XAU/USD) recovers for a second day in a row, trading back up in the $2,410s as “stagflation” fears mount. The term, which describes above-trend inflation coupled with weak growth and jobs data, is a portmanteau of “stagnant” and “inflation”. Economists are applying it to the current environment following the release of the Philadelphia non-manufacturing Business Outlook Survey, which combined a weak headline and a high prices paid component. At the same time, US Existing Home Sales fell 5.4% month-over-month in June – further evidence of a slowdown – according to analysts at Rabobank.
Gold trades higher amid US economic slowdown
Gold's recovery is also fueled by expectations of potential interest rate cuts from the Federal Reserve (Fed), which make non-interest-bearing assets like Gold more attractive to investors. The interplay of economic indicators and central bank policies will continue to be crucial in shaping Gold's price trajectory in the near term.
Traders now await the release of more US economic data later this week for clarity on the trajectory of US interest rates. Of major interest will be the US Q2 Gross Domestic Product (GDP) growth data on Thursday and the Personal Consumption Expenditures (PCE) Price Index report for June on Friday.
The Q2 GDP growth advance estimate is expected to show a 1.9% expansion, up from 1.4% in Q1, while the PCE price index is forecasted to see a 0.1% uptick after remaining flat in May. Although recently, cooling US headline consumer inflation bolstered expectations that the Fed will begin cutting interest rates in September, whether more cuts are likely before the end of the year remains open for debate. If the data surprises to the upside, the Fed may delay lowering interest rates beyond September. This would weigh on the Gold price.
Another factor impacting Gold price is that US Vice President Kamala Harris secured the support of enough delegates to clinch the Democratic nomination. This has prompted some unwinding of the “Trump trade” and dragged US bond yields lower – both positive factors for Gold. In some polls, Harris now leads Trump, suggesting a less inflationary outlook for the economy if she wins.
Wednesday's release of the preliminary US S&P Global Purchasing Managers Index (PMI) for July will be looked upon for fresh cues about the health of the global economy and potentially allow traders to grab short-term opportunities around the precious metal.
FXStreet
