In recent months, the US economy`s performance has had significant effects on financial markets. Strong US data resulted in higher Treasury yields and a stronger US dollar. Consequently, the price of gold, which is typically viewed as a safe haven asset and tends to perform well when yields are low and the dollar is weak, suffered.
However, a shift in the data narrative emerged recently. This shift began with the underwhelming US PMI numbers and continued with disappointing labor market reports in the first half of the week. As a result, Treasury yields dropped, and the US dollar weakened. This change in circumstances has boosted gold`s appeal as an investment.
The market has also adjusted its expectations regarding Federal Reserve actions, essentially pricing out anticipations for further rate hikes and even contemplating rate cuts. This shift has further supported the price of gold since it tends to perform better when interest rates are lower.
To sum it up, recent US economic data has positively impacted the price of gold due to the weaker dollar, lower Treasury yields, and revised expectations of potential rate cuts.
We have a sequence of events on the 4-hour chart, including a MACD divergence, price breakout, and strong buyer response following the confirmation of a reversal. Also, the price is now trading within a channel - typically a period of consolidation or range-bound movement. It may suggest that the initial bullish momentum has slowed down, and the market is seeking a new equilibrium.
Several other factors may influence the future price of gold:
- Global Economic Health: A weakening global economy may prompt investors to seek safe-haven assets like gold.
- Inflation: Rising inflation rates may make gold more appealing to investors as a hedge against eroding purchasing power.
- Geopolitical Events: During periods of political and economic uncertainty, gold often becomes a sought-after asset.
It`s worth noting that the direction of future economic reports will play a pivotal role in gold`s performance. Weaker-than-expected data may bolster gold prices by suggesting a slowing US economy, while stronger-than-expected data could have the opposite effect by indicating a stronger-than-anticipated economy. Investors should carefully consider these multifaceted factors before making any investment decisions in the gold market.