By Barani Krishnan
Investing.com -- Whether it’s the drone of U.S. recession talk or the plummeting dollar and bond yields, gold has remained in positive territory since returning from the depths of sub-$1,700 damnation.
After climbing for a fourth day in a row, both futures of the yellow metal as well as the spot price of physical bullion sits less than $15 an ounce from $1,800 territory — exactly where longs in space would like them to be.
Gold’s benchmark futures on New York’s Comex, December, settled Monday’s official session up $5.90, or 0.3%, at $1,787.70, after a session high at $1,791.90. It had plumbed 11-month lows of 1,678.40 on July 21.
Spot gold was at $1,769.50 by 3:10 PM ET (19:10 GMT) on Monday, up $3.20, or 0.2%, from Friday’s settlement in New York.
The dollar, a contrarian trade to gold, was doing exactly the opposite to the yellow metal, falling for a fourth straight day. The Dollar Index, which pits the greenback against six other major currencies, hit a near three-week low at 105.11, after a two-decade high of 109.14 on July 14.
U.S. bond yields also fell, with the benchmark 10-year Treasury note hitting a five-month low at 2.584%.
Gold has shown encouraging strength in holding to the higher end of $1,700 since the reading on second quarter U.S. gross domestic product on Friday that technically placed the economy in a recession.
The yellow metal gained 2.2% last week for its best weekly performance in four months after Federal Reserve Chair Jerome Powell said the central bank couldn’t predict if it’ll hold on to the aggressive rate hikes it had conducted since March to beat inflation, as the U.S. economy itself was sliding.
Gold is supposed to be a hedge against inflation but it has not been able to hold up to that billing for most of the past two years since hitting record highs above $2,100 in August 2020. One reason for that has been the rallying Dollar Index, which is up 11% this year after a 6% gain in 2021.
Gold’s uptick on Monday was aided by weak Chinese factory activity, which shrank in July amid a fresh round of COVID-related lockdowns. Beijing’s official purchasing manager’s index fell to 49.0 in July, indicating a contraction, from 50.2 in the previous month.
China is the world’s No. 2 economy and a prolonged economic downturn there is likely to weigh on global growth.
In the US, manufacturing PMI was a notch better at 52.8 versus 53 for June. The accompanying note from the Institute for Supply Management did not help sentiment. “Growing inflation is pushing a stronger narrative around pending recession concerns. Many customers appear to be pulling back on orders in an effort to reduce inventories,” the institute said.
The news out of the rest of Asia wasn’t any better, as South Korea's factory activity fell for the first time in almost two years and Japan saw its slowest growth in activity in 10 months.
Manufacturing is already in contraction in the Eurozone owing to the acute energy crisis and accompanying inflation problem, and those factors also appear to be hitting the consumers as German retail sales slumped to the biggest annual drop since the country started collecting pan-German data in 1994.
Despite all these factors aiding gold’s standing as a safe haven, bullion’s ability to break above $1,800 and progress from there might remain a greater challenge than thought, analysts who watch the space said.
″Bullion bulls are waiting to see if the coast is clear for another leg up, making sure expectations for a less-aggressive Fed are indeed rooted in reality,” Han Tan, chief market analyst at Exinity, said in remarks carried by Reuters. “Like the Fed, gold’s next move may be data dependent.”