📉 Gold Pulls Back Sharply as U.S. Economic Data Surprises to the Upside
The latest economic data out of the U.S. sent shockwaves through financial markets. Stronger-than-expected rebounds in both manufacturing and services activity sparked a swift selloff in gold, with prices plunging below $3,300 per ounce during Thursday’s European session. At its lowest, gold touched $3,285 per ounce — its steepest single-day loss in two weeks.
📊 PMI Data Signals an Economic Rebound
S&P Global’s flash PMI for May surprised to the upside, with both manufacturing and services indices jumping to 52.3 — comfortably above the 50 threshold separating growth from contraction. For manufacturers, the pickup was driven by stronger new orders, hinting at renewed consumer and business demand. Services saw a similar recovery, with demand especially strong in the retail and consumer sectors. Employment in the services segment also snapped out of its recent slump.
Still, some industry voices caution the rebound may be front-loaded. Concerns over potential tariffs have led companies to stockpile inventory — boosting short-term data, but possibly pulling forward demand that could weigh on future months.
📉 Technical and Macro Headwinds for Gold
Upbeat economic signals have shifted expectations for Fed policy. Treasury yields climbed, the dollar strengthened, and the appeal of gold as a safe haven diminished. Spot prices are now testing a key technical support zone between $3,277 and $3,285. A break lower could trigger further algorithmic selling, potentially pushing prices down toward $3,220–$3,240. On the upside, resistance looms around $3,346 — near the 200-hour moving average.
Despite price weakness, institutional buyers are not backing off. SPDR Gold Shares (GLD), the world’s largest gold ETF, added 4.3 metric tons of bullion in just 24 hours, lifting total holdings to a 2024 high of 878.2 tons. This suggests long-term investors are using pullbacks to build strategic positions.
📈 Rising Rates and a Stronger Dollar Weigh on Gold
Markets are now pricing in a “soft landing” — or even no landing — for the U.S. economy. This pushed 10-year Treasury yields to 4.59%, while the U.S. Dollar Index climbed to 104.8, putting further pressure on gold. Meanwhile, tepid demand for 20-year Treasury bonds signals investor caution around inflation and long-term debt risks. Futures markets now expect the Fed’s first rate cut to be pushed from September to November, and the total amount of easing this year could be just 35 basis points.
Fund flows also tell a clear story: EPFR data shows $11.2 billion exited global gold ETFs last week — the largest weekly outflow since early 2023 — while inflows to U.S. equity funds surged. The historical inverse correlation between gold and equities appears to be loosening, with both experiencing periods of synchronized volatility.
💸 Inflation Risks Remain Sticky
PMI data also revealed renewed cost pressures. Input prices in manufacturing jumped to 58.1 in May, mainly due to tariffs raising materials costs — especially electronic components and metals, which are reportedly up 12–15%. Wage and rent growth added to cost pressures in the services sector, lifting the prices index to 56.3. Persistent input inflation could complicate the Fed’s path to rate cuts, as core inflation remains stubbornly elevated.
At the corporate level, changes are underway, too: businesses are shifting away from “just-in-time” inventory models in favor of buildup strategies to hedge against potential supply disruptions — a structural change that could amplify long-term cost pressures.
🏦 Central Banks Still Buying Gold — Long-Term Tailwinds Remain
While short-term sentiment is under pressure, gold’s long-term outlook remains solid. Geopolitical risks — from Iran’s nuclear diplomacy to tensions in the Taiwan Strait — provide a backdrop of uncertainty that supports demand. At the same time, widening U.S. fiscal deficits and debt concerns add layers of risk that gold helps hedge against.
A controversial fiscal bill passed by the U.S. House is fueling concerns about ballooning federal debt. If enacted without offsetting revenue measures, debt-to-GDP could exceed 130% by the end of the decade. Credit rating agencies are watching closely.
Meanwhile, central banks continue their gold-buying spree. In Q1 2024 alone, they added a net 289 tons of gold, led by the People’s Bank of China, which has increased its reserves for 18 consecutive months. These asset allocation moves show that nation-states are still leaning into gold as a core reserve holding.
🔍 Near-Term Outlook: Watch for Technical Triggers and Policy Signals
Gold is now sitting near a critical neckline at $3,277. A breakdown could trigger programmatic selling, but solid physical demand — particularly from Asia and central banks — may cushion the downside. In the near term, expect a choppy range between $3,250–$3,350 as the market digests fresh signals.
Watch for Friday’s University of Michigan consumer inflation expectations survey, as well as Fed Governor Waller’s comments on balance sheet policy — both could shift the gold narrative in the days ahead.
📌 Bottom Line
Gold may face short-term pressure from macro surprises and shifting policy bets, but its long-term fundamentals remain strong. As global capital reassesses sovereign risk and monetary policy trajectories, gold’s role as a hedge and store of value remains more relevant than ever.
