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Gold gains momentum with consolidation breakout as US Dollar and yields weaken under pressure from weaker PMI data

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Gold prices continue to rise as weak US PMI data puts pressure on US Treasury yields and the US Dollar. The manufacturing PMI for August dropped to 47.0, significantly lower than the expected 49.3 and July’s reading of 49.3. Additionally, services PMI underperformed estimates, landing at 51.0 instead of the expected 52.2. As a result, the US Dollar slipped and 10-year US Treasury yields plunged. The strength in gold prices comes from the restrictive upside in US Treasury yields.

At the Jackson Hole Symposium, Fed Chair Jerome Powell is expected to discuss the benefits of keeping rates higher for longer. The Fed will likely have to maintain higher interest rates for a longer period due to persistent inflation above the desired rate of 2%. The US headline Consumer Price Index has come down to 3.2% from its peak of 9.1% but remains stubbornly above the target. Powell is not expected to support further policy tightening in the absence of positive economic data.

Gold prices are climbing as US Treasury yields drop ahead of the Jackson Hole Economic Symposium. The 10-year US Treasury yields have fallen below 4.30% as Fed Chair Jerome Powell is not likely to mention further policy tightening during the event. Richmond Fed Bank President Thomas Barkin stated that the recent drop in bond yields is a response to strong economic data, rather than inappropriate market tightening. Barkin also believes that the US recession will be “less severe.” Investors anticipate that Powell will suggest keeping interest rates higher for a longer period to allow inflation to return to the desired rate of 2%.

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