Global Markets Hit by Recession Fears: Will Gold Benefit?

- Gold failed to hold onto its recent gains, struggling to reach its all-time high (ATH) level of $2,483.78 per ounce, recorded in July, benefiting from increased demand for safe-haven assets amid growing concerns about a global economic slowdown and renewed geopolitical tensions, coinciding with anticipation of Iran's military response to Israel.

- The yellow metal has benefited from safe-haven demand after disappointing U.S. economic data, particularly in industrial activity and the labor market, heightened fears that the world’s largest economy is slowing down faster than initially expected. This has led to significant declines in most risk-related markets, especially in Equities, Treasuries, and USD, thereby boosting safe-haven bets on gold.

- Wall Street appears poised to start the week with substantial losses amid concerns of a rapid slowdown in the U.S. economy. Bitcoin, the world’s favorite cryptocurrency, has dropped by about 14% as risk appetite wanes.

- China is also going through a vulnerable phase due to weak demand from both domestic and overseas markets, with "the Caixin" Manufacturing PMI unexpectedly contracting to 49.8 in July. Additionally, the Eurozone economy is facing demand issues in its largest country, prompting the German government to provide tax relief to individuals and the corporate sector. Now, the slowdown in U.S. economic growth has heightened fears of a deeper economic downturn.

- It seems that the current sell-off in global financial markets may continue this week, especially in equity markets, as investors are concerned about the weak U.S. Nonfarm Payrolls report for July. This report has led to accusations that the Federal Reserve’s prolonged high interest rates may push the largest economy in the world into recession. Markets are now pricing in a 78% chance that the Federal Reserve will cut rates by a full 50 basis points in September.

- The U.S. Nonfarm Payrolls report for July showed a significant slowdown in labor demand, with the unemployment rate unexpectedly rising to its highest level since November 2021. New job numbers were at 114,000, far below estimates of 175,000 and June’s reading of 179,000. The unemployment rate surged to 4.3%, surpassing expectations and the previous release of 4.1%. Meanwhile, manufacturing activity, as measured by the ISM Manufacturing PMI, contracted at a faster pace to 46.8 in July.

- Despite the aforementioned factors, gold prices are still showing a possible weak reaction and may fall below 2,410 an ounce. It appears that markets are waiting for Iran's military response to Israel. Increasing geopolitical tensions enhance gold’s appeal as a safe-haven asset.

Technical Analysis of Gold

- Gold is moving in a sideways range between $2,400 and $2,465, awaiting a potential breakout. If the yellow metal can break above the all-time high of $2,483.75, a new upward trend may emerge, potentially leading to levels of $2,500 and $2,520 per ounce. However, if gold fails to maintain above $2,400 with a daily close, it could open the path for a strong decline toward support levels of $2,370 and $2,350, with a possible touch of $2,320 per ounce.

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