On Thursday (July 25th) morning trading in the Asian market, spot gold fluctuated narrowly and is currently trading around $2396.76 per ounce. On Wednesday, gold prices surged and fell back. Earlier, due to market expectations that the Federal Reserve would cut interest rates twice a year, the US dollar fell and gold prices even rose to $2431.87 per ounce. However, the initial value of the US July Composite Purchasing Managers' Index (PMI) rose to the highest level since April 2022, and the 10-year US Treasury yield rebounded to a nearly two-week high, causing gold prices to turn from rising to falling and close at $2397.08 per ounce.

Investors are eagerly awaiting the release of the US Q2 Gross Domestic Product (GDP) report on Thursday and the June Personal Consumption Expenditure (PCE) price index on Friday, in search of clues on the path of the Federal Reserve's interest rate cut.

Jim Wyckoff, senior market analyst at Kitco Metals, said that "the weakening of the US dollar index, the decline of the US stock index, and the rise in crude oil prices all support the buying frenzy for gold and silver.

EverBank's Global Markets President Chris Gaffney said, "The main factor currently supporting gold is market expectations that the Federal Reserve may really decide to cut interest rates before September. In addition, India's reduction of import tariffs on gold and silver will also help, as it will increase demand.

Note: India reduced import tariffs on gold and silver from 15% to 6% on Tuesday.

The yield of short-term US treasury bond bonds fell on Wednesday, but the yield of long-term treasury bond bonds rose, putting pressure on gold prices. Investors digested a series of economic data to judge the health of the economy.

The yield spread of two-year/10-year government bonds was negative 13.4 basis points, previously hitting negative 13.0 basis points, the lightest inversion since October 23rd.

People generally believe that the inversion of this curve is a reliable signal, indicating that an economic recession may occur in one to two years. The last time it was in a non inverted state was in early July 2022.

The yield of two-year treasury bond bonds, which usually follow interest rate expectations, fell 3.5 basis points to 4.41% on Wednesday. The yield on US 10-year treasury bond bonds rose 3.9 basis points to 4.278% on Wednesday.

The reduction in the degree of inversion means that the risk of economic recession has decreased, weakening the safe haven demand for gold. Previously, the market's expectation of a ceasefire agreement in the Middle East also suppressed the safe haven demand for gold, but investors still need to keep an eye on geopolitical news.

According to sources, on the 24th local time, the Israeli negotiation team postponed their departure to participate in the Gaza ceasefire and personnel exchange agreement negotiations. The Israeli negotiating delegation will not travel to Qatar as previously planned before the 25th, but will postpone their departure until next week. It is reported that the reason for the delay is that the meeting between Prime Minister Netanyahu and Biden has been postponed to the 25th, and Netanyahu hopes to coordinate his position with Biden on the content of the agreement before the Israeli negotiation team departs.

The Ukrainian Ministry of Foreign Affairs stated that Foreign Minister Kuleba stated on Wednesday that if Moscow is willing to engage in sincere negotiations, Ukraine is also willing to negotiate with Russia, but there have been no signs of such talks from Russia so far.

In terms of economic data, the US goods trade deficit narrowed for the first time this year in June, as exports rebounded widely, but this may not be enough to prevent trade from continuing to drag down economic growth in the second quarter. The second quarter Gross Domestic Product (GDP) report will be released on Thursday.

After S&P Global released the initial value of the US July Composite Purchasing Managers' Index (PMI), the yield temporarily narrowed its decline.

Business activity in the United States climbed to a 27 month high in July, but amid consumer resistance, businesses seem to struggle to maintain high prices for goods and services, further boosting the inflation outlook. However, there are indications that companies are struggling to maintain high prices.

S&P Global announced on Wednesday that the initial value of the US Composite Purchasing Managers' Index (PMI), which tracks the manufacturing and service industries, rose to 55.0 this month. This is the highest level since April 2022, after a final value of 54.8 in June.

An index above 50 indicates that the private sector has expanded. The rebound of the service industry offset the slowdown of the manufacturing industry.

The average price increase of goods and services is the slowest since January and is currently at a level that S&P Global considers to be in line with the Federal Reserve's 2% inflation target. This slowdown confirms reports from large retailers about consumer resistance to price increases and indicates a downward trend in inflation after the first drop in consumer prices in four years in June.

Chris Williamson, Chief Business Economist of S&P Global Markets Intelligence, said, "The initial PMI data indicates a 'blonde girl' scenario in early third quarter, with the economy growing at a strong pace and inflation easing

According to a global survey by Standard&Poor's, the index of new orders received by private enterprises fell from 53.1 in June to 52.9. The input price index paid by enterprises increased from 56.5 in June to 57.8. This reflects the rising costs of raw materials, transportation, and labor. The rise in service industry wages remains a factor.

But the fee price index of the survey dropped from 53.8 in June to 53.1, the slowest since January and the second slowest since October 2020.

Private sector employment continues to increase, but the growth momentum of both manufacturing and service industries has slowed down.

The survey shows that the Purchasing Managers' Index (PMI) for the manufacturing industry in July fell from 51.6 in June to 49.5, hitting a seven month low. Economists surveyed by Reuters predict that the manufacturing index, which accounts for 10.3% of the total economy, will be 51.7, with little change.

The Purchasing Managers' Index (PMI) for the US service sector rose from 55.3 in June to 56.0, setting a new high in 28 months. Economists expect the index to drop to 55.0. S&P Global reports that the uncertainty surrounding the November presidential election and its policies continues to have a negative impact on future sentiment.

The Democratic Rules Committee approved a plan on Wednesday to formally nominate Vice President Harris as the party's presidential candidate no earlier than August 1st, and Harris will select his running mate before August 7th.

Republican presidential candidate Trump held his first campaign rally since President Biden withdrew over the weekend, and is expected to launch a fierce attack on his new Democratic opponent Harris. At the event held in the battleground state of North Carolina, Trump may portray Harris as a proxy for Biden's economic and immigration policies, which have led to a decline in Biden's voter support.

Investors are waiting for Friday's June Personal Consumption Expenditures (PCE) price index data to further understand the inflation outlook and the Federal Reserve's interest rate path.

With recent inflation data such as the Consumer Price Index (CPI) showing that prices have cooled again, market confidence in the Federal Reserve's interest rate cuts this year has increased.

BondBloxx partner and client portfolio manager JoAnne Bianco said, "Things will have ups and downs, but we need more data to figure out what kind of trend we will be on. You have already seen that the overall and core CPI are lower than expected, which will affect PCE and core PCE, so I expect the situation to be similar

The Federal Reserve is scheduled to hold its next policy meeting at the end of July. According to the CME FedWatch Tool, the market believes that the possibility of a rate cut of at least 25 basis points at the meeting is very slim, but it has fully digested the expectation of a rate cut in September, and the market expects a 100% chance of the Federal Reserve cutting interest rates in September.

From a technical perspective, at the daily level, the 5-day moving average crosses the 10 day moving average to form a dead cross, MACD dead cross, KDJ dead cross, and the overnight rebound of gold price is suppressed by the 10 day moving average, recording a long bearish upper shadow line, indicating strong selling pressure above and further downward risk for short-term gold price. The initial support refers to the position near the 21 day moving average 2387.31, followed by the 2380 level, and the strong support refers to the position near the 55 day moving average 2361.26.

The 10 day moving average above has currently fallen to around 2420.74. If it unexpectedly breaks through this resistance, it will weaken the short-term bearish signal.

Daily chart of spot gold

It should be noted that this trading day will also release changes in the number of initial jobless claims in the United States and data on durable goods orders for June, which investors need to pay attention to.