Gold prices have taken a hit in recent days as weaker-than-expected US economic data has reduced the likelihood of a pause in the Federal Reserve’s monetary policy tightening cycle. The yellow metal had been rising steadily in recent weeks, buoyed by concerns over rising inflation, geopolitical tensions, and the ongoing COVID-19 pandemic. However, the release of several key economic indicators this week has changed the narrative, sending investors fleeing to safer assets.
On Wednesday, the Institute for Supply Management (ISM) reported that its manufacturing activity index fell to 60.7 in April, down from 64.7 in March, missing analysts’ expectations. While the index still reflects strong growth in the sector, the decline suggests that supply chain disruptions and labor shortages are starting to weigh on the economy. Meanwhile, the ADP National Employment Report showed that private payrolls increased by just 742,000 in April, missing estimates of 800,000. This comes ahead of the more closely-watched nonfarm payrolls report due out on Friday.
The weaker data has led many investors to question whether the Federal Reserve will slow down its pace of asset purchases anytime soon. The central bank has been buying $120 billion in bonds per month since the beginning of the year, but officials have hinted that they may start to taper these purchases as early as later this year. However, the recent data suggests that the economy may not be as strong as initially thought, which could delay the Fed’s plans.
As a result, gold prices have turned lower, with the metal falling below the key $1,800 per ounce level on Wednesday. The move lower marks a sharp reversal from the metal’s recent upward trajectory, which saw it climb as high as $1,837 earlier in the week. However, some analysts believe that the pullback may be short-lived, as concerns over inflation and geopolitical risks remain.
“Although the recent economic data has been weaker, we still see a lot of uncertainty in the global economy, particularly with regards to inflation and the ongoing pandemic,” said John Smith, chief analyst at ABC Capital. “These factors are likely to support gold prices over the long term, even if we see some short-term volatility.”
In conclusion, the recent economic data out of the US has put pressure on gold prices, as investors reassess their expectations for Fed policy. However, the longer-term outlook for the yellow metal remains positive, as concerns over inflation and geopolitical risks continue to support demand.
