Thursday has been a very busy day for the U.S. markets. With a heavy slate of economic data hitting the wires this morning, the gold market is on the move after being up just marginally earlier in the day. Data released today includes Weekly Jobless Claims, the ADP jobs report, productivity and costs, U.S. Manufacturing PMI, Global Manufacturing PMI, auto industry sales, monthly chain store sales, ISM business manufacturing data, construction spending and weekly liquid energy stocks.
U.S. manufacturing edged lower again in May. The ISM index showed a reading of 46.9%, slightly worse than consensus estimates of a 47% reading. The May figure was also weaker than April’s reading of 47.1%. The seventh straight month of declining manufacturing data may lend credibility to those fearing a recession is on the way. The employment index reported another month of expansion, however, and that is what the gold market may pay more attention to. This could be viewed as a preview of tomorrow’s non-farm payrolls data for May and could give the Fed more reason to continue hiking rates aggressively rather than taking a breather.
The big question now is whether or not the Fed will elect to pause its rate hikes when it meets later this month. The slumping manufacturing data would seem to suggest a pause is likely, while strong employment data may keep the Fed lifting rates further. Any signs that the Fed is going to take a pause could be bullish for gold, while any indications that the Fed is going to keep raising rates may be bearish for the metal. The gold bulls have bought into the market in recent months despite sharply higher interest rates, but at some point, that enthusiasm will dissipate if rates continue to march higher.
The gold bulls have been unable to maintain trade above the key $2,000 level thus far. The market remains close to this area, however, at just $20 lower than this point as of today. If the bulls are able to produce a close above the $2,000 level, the market may take off again and probe further upside. A failure of the bulls to overtake this level may lead to more bearish price action. Although the market has thus far failed to hold $2,000 per ounce, it has not fallen far below this area. The longer the bulls are unable to press forward, however, the greater the likelihood that the bears will eventually drive prices lower.
The bulls remain in control for the time being. The bulls have largely faded in recent weeks, however, and the market is now trending lower on the daily chart. The $1,900 and $2,000 levels are the next major tests for the bulls and the bears. Whichever level is broken first, on a closing basis, will likely determine the market’s direction for the months ahead.