Gold Price News: Gold Falls As US Data Points to Economic Strength

Gold prices slumped on Friday, as US economic data suggested policymakers may need to keep interest rates at current levels for a longer period.

Prices fell as low as $2,319 an ounce on Friday, compared with around $2,360 an ounce in late trades on Thursday.

The sharp drop, which erased the previous day’s gains, came after US manufacturing PMI figures were released on Friday showing that activity in the sector had increased to a three-month high in June. In addition, US services PMI data for June showed the strongest expansion since April 2022.

The latest indicators point to a stronger-than-expected US economy, indicating greater leeway for the US Fed to keep interest rates at current high levels before starting a much-anticipated rate-cutting cycle. Higher interest rates tend to weigh on gold as they increase the opportunity cost of holding non-interest-bearing investments.

The US dollar also strengthened against other major currencies on Friday, contributing to gold’s downward move. A stronger dollar makes dollar-denominated assets like gold more expensive for buyers in other currencies, denting demand.

Elsewhere, French bank Societe Generale issued a report earlier in the week noting that gold prices are being driven less by the usual macro drivers and more by secular trends negatively affecting fiat currencies: Attained but not sustained? | SG Markets Insight

These trends include the use of the dollar as a tool of sanctions enforcement, which has highlighted the vulnerability of sovereign fiat currencies as a reserve asset; global inflation which has positively distinguished gold as a safe haven; and long-term forecasts of a rising US debt-to-GDP ratio, which elevates the longer-term risks to the US fiscal and economic outlook, the bank said.

In contrast, Royal Bank of Canada issued a report last week saying it believes gold is currently overvalued. RBC thinks central bank demand will continue to be strong, but there are reasons to be cautious on the volume at record prices after such a sustained period of strength, it said.

Looking ahead, Monday will see the UK CBI Industrial Trends Orders for June, for an update on the UK economy, while speeches by US Fed officials on Monday and Tuesday may provide further insight on the outlook for interest rates.