• Gold price trades on the defensive near $1,955, down 0.41% for the day.
• The Chinese Caixin Manufacturing PMI for July fell to 49.2 from 50.5 prior, versus the market consensus of 50.3.
• The softer US inflation data might convince the Federal Reserve (Fed) to ease its hawkish stance.
• Investors await the US ISM Manufacturing PMI data later in the North American session.

The gold price loses momentum around $1,955 heading into the early European session. XAU/USD faces some follow-through selling as US-China tensions over access to technology escalate, and the US Dollar strengthens across the board. Meanwhile, the US Dollar Index (DXY), a measure of the value of the Greenback against a basket of six major currencies, gains momentum above 102.00. 

Chinese authorities announced additional policy guidelines on Monday. Still, no specific plans to bolster the faltering economy and domestic consumption, leaving investors wanting as lackluster activity data increased pressure on officials to act.

The Chinese Caixin Manufacturing PMI for July fell to 49.2 from 50.5 prior, versus the market consensus of 50.3. This figure marked the lowest level since January. This, in turn, caps the upside in precious metals, as China is one of the largest gold consumers. Additionally, the Manufacturing Purchasing Managers’ Index (PMI) increased to 49.3 in July, improving from 49.0 in June and the market’s expectation of 49.2. However, the figure was marked below 50 for the fourth straight month, indicating the contraction zone. Meanwhile, the NBS Services PMI fell from 53.2 in June to 51.5 in July. 

On the other hand, the evidence of easing underlying price pressures in the United States might convince the Fed to ease its hawkish stance. That said, the Personal Consumption Expenditures (PCE) Price Index decreased from 3.8% in May to 3% in June, below the market’s expectation of 3.1%. The Core PCE Price Index came in at 4.1% annually, down from 4.6% in May and below market expectations of 4.2%.

The softer data could bring the Federal Reserve (Fed) closer to the end of its rate-hiking cycle. This may limit the US Dollar’s upside and act as a tailwind for the gold price. It’s worth noting that gold is sensitive to rising interest rates as they raise the opportunity cost of holding non-yielding bullion.

Furthermore, the renewed trade war tensions between the US-China over access to technology might exert some pressure on the gold price. China’s authorities announced on Monday export restrictions on some drones and drone-related equipment to the US, citing “national security and interests”. The restriction will go into effect on September 1, according to the commerce ministry.

Market participants await the US ISM Manufacturing Purchasing Managers Index (PMI) data later in the North American session for a clear direction in XAU/USD. Also, the JOLTS Job Openings report, ADP Private Employment, Weekly Jobless Claims, and Unit Labour Cost will be released later this week. The highlight of the week will be the US Nonfarm Payrolls (NFP). These data might influence the USD price dynamics and determine short-term trading opportunities around the gold price. Also, the headline surrounding the Sino-US relationship remains in focus.

XAU/USD