Gold price rebound appears short-lived below $1,750, recession, PMI in focus

Gold price (XAUUSD) grinds higher around $1,717-20 on early Friday, after staging the biggest daily rebound in five weeks the previous day. The metal’s corrective pullback from the yearly low took clues from the US dollar’s weakness and upbeat sentiment but the latest cautious mood could well be linked to the lack of major catalysts and cautious mood ahead of the key US activity data for July.

US Dollar Index (DXY) braces for the first weekly loss in four while extending the July 14 reversal from a nearly two-decade high. The greenback’s latest losses could be linked to the US Treasury yields as the benchmark 10-year bond coupons marked the biggest daily slump since mid-June the previous day.

Also read: Gold Price Forecast: Bears keeping XAUUSD in check

Gold price cheered ECB’s 50 bps rate hike

ECB headquarters in Germany

European Central Bank (ECB) crossed market forecasts while announcing 50 basis points (bps) of a rate hike the previous day. In doing so, the region’s central bank returned to the 0.0% rate after more than a decade and resumed confidence among the traders, at least for the short term. Also, the ECB’s announcement of a new tool called the Transmission Protection Instrument (TPI) to tame disorderly market dynamics in the bloc might have favored the market’s optimism and propelled gold price. Above all, the slump in the Treasury yields following the ECB announcement was the widely discussed catalyst that weighed on the US dollar and helped the bullion to rebound from the yearly low.

Nord Stream 1 also favored XAUUSD buyers

In addition to the ECB, the resumption of gas flow to Europe by Russia’s Nord Stream 1 pipeline also favored the market sentiment and helped recall the gold buyers at the yearly low. “Flows through Russia's Nord Stream 1 natural gas pipeline, which runs under the Baltic Sea to Germany, partially resumed after being shut for maintenance on July 11. The pipeline had already run on reduced volumes following a dispute sparked by Russia's invasion of Ukraine,” said Reuters.

Growth fears of China test upside moves

On Thursday, the Asian Development Bank (ADB) raised concerns over China’s economic slowdown and probed gold buyers earlier in the day. The reason could be linked to the dragon nation’s status as one of the biggest gold consumers in the world. “China's economy will likely expand 4.0% this year, the ADB said, a drop of 1 percentage point from its April forecast, but will recover lost ground in 2023 with intact growth seen at 4.8%,” per Reuters.

Options market probe gold bulls

Options market signals continue to tease the gold sellers, after snapping the four-week-old bearish bias by the end of the previous Friday. That said, the daily risk reversal (RR), the spread between the calls and the puts, dropped the most since July by the end of Thursday’s North America trading session. As per the latest Reuters data for gold options, the RR prints -0.135 figures versus +0.015 and +0.105 readings in the last. With this, the weekly RR also turns negative to -0.015.

PMIs are the key

Preliminary figures of the US S&P Global Manufacturing and Services PMI for July are crucial for gold traders moving forward, especially after the ECB and before next week’s Fed meeting. The reason could also be linked to the recession fears and chatters surrounding the central bank’s aggression. That said, the US S&P Global Manufacturing PMI is expected to decline to 52.0 from 52.7 whereas its Services counterpart could ease to 52.6 from 52.7. With this, the Composite PMI may drop to 51.7 from 52.3 prior. Considering the downbeat forecasts for the US data, the US dollar may witness further headwinds and the same could help the gold price to extend the latest rebound if the actual figures match the market consensus.

Gold price technical outlook

Gold price holds onto its bounce off the previous restrict line from July 05, also staying beyond 50-SMA, to keep buyers hopeful amid bullish MACD signals.

However, a fortnight-old resistance line near $1,728 is likely to challenge the XAUUSD buyers ahead of the 100-SMA level surrounding $1,745.

Also acting as an upside hurdle is the July 08 swing high near $1,753, a break of which could welcome gold buyers.

Alternatively, the 50-SMA and the recent lows could restrict the immediate downside respectively around $1,714 and $1,680. However, the quote’s weakness past $1,680 will be challenged by the aforementioned resistance-turned-support near $1,674 by the press time.

Gold: Four-hour chart

Gold halts decline, but bearish risks still intact