Gold trading reminder: Concerns about an impending recession have eased, is the gold price aiming for the 100-day moving average?

In early Asian trading, spot gold continued its overnight decline and is currently trading around $2,383.43 per barrel. As market concerns about an impending recession eased, the dollar strengthened on Tuesday and bond yields rebounded, gold prices fell back below the 2,400 mark, hitting an intraday low of $2,381.50 per ounce and closing at $2,389.72 per ounce, although expectations of a September U.S. rate cut and escalating geopolitical tensions in the Middle East still provided some support for gold prices.

The dollar index rose 0.2% on Tuesday, and the U.S. 10-year benchmark yield also rose on Tuesday.

Fu Xiao, head of global commodity market strategy at Bank of China International, said: "Mainly affected by the strengthening of the U.S. dollar, gold is still somewhat weak...but the macro environment for gold is relatively positive, so we may see some range fluctuations in gold in the short term."

The Lebanese Hezbollah armed group launched a series of drone and rocket attacks on northern Israel. But Iran has been slow to retaliate against Israel, and geopolitical concerns have also eased.

Federal Reserve policymakers have pushed back against the view that weaker-than-expected July jobs data means the economy is in recession, but have also warned that rate cuts are needed to avoid that outcome.

According to the CME FedWatch tool, the market sees a 100% chance of a rate cut in September. But the probability of a 50 basis point cut has fallen from 83% to 71.5% as market concerns about a U.S. recession have eased.

On this trading day, investors need to pay attention to China's July trade data, speeches by Fed officials and news related to the geopolitical situation, and news related to the U.S. election and the performance of the U.S. stock market.

From a technical perspective, gold prices tend to fluctuate and build a top in the short term. After losing the 2400 mark again, they tend to test the support near the 100-day moving average of 2344.05. Pay attention to the resistance near the 2400 mark and the 10-day moving average of 2406.48 above.

PIMCO chief investment officer says U.S. may avoid recession, but warns of dire fiscal situation

PIMCO chief investment officer Daniel Ivascyn said the U.S. economy is expected to achieve a soft landing despite signs of further weakening, but the country's deteriorating fiscal situation is prompting the company to increasingly increase its exposure to foreign government bonds.

He said the recent stock market sell-off and the rise in prices of safer U.S. government bonds reflect weak economic data, which increases the probability of a recession in the next 12 months, but the U.S. economy may still avoid a recession.

"We do think the market may be a little ahead of the curve in anticipating rate cuts from major central banks," Ivascyn said in an interview on Tuesday. "Barring a major geopolitical shock or major problems with market functioning, major central banks, especially the Fed, are likely to cut rates by 25 basis points in September, and future meetings may also take action."

U.S. Treasury prices rose sharply over the weekend after weaker-than-expected economic data raised concerns about a recession and prompted the market to reprice expectations for rate cuts in the coming months, with some even betting that the Fed will hold an emergency meeting to cut rates.

Ivanshin said the surge also reflects heightened geopolitical concerns. Earlier, Iran vowed to retaliate against Israel and the United States after the killing of two military commanders, sparking market concerns that a larger war could break out in the Middle East.

He said: "All of this is happening against the backdrop of high uncertainty in the Middle East... People sometimes forget what a unique environment this is, and people actually expect a response from a major Middle Eastern power at any time."

Ivanshin said the recent market sell-off has led to a widening of credit spreads - the premium investors demand to buy corporate bonds instead of safer government bonds - but corporate bond valuations remain unattractive, especially bonds issued by companies with lower credit ratings. He recently increased his investment in higher-rated corporate bonds.

"We think floating rate, low-rated credit, and especially private direct lending, are the areas where complacency is the most present," he said. "These asset prices didn't move much last week, so in theory, they've become more expensive compared to government Treasuries or listed stocks."

Ivanshin said clients have been asking about the deteriorating fiscal situation in the United States, and PIMCO is diversifying its risk by buying more foreign government Treasuries. PIMCO is a bond-focused asset manager with $1.9 trillion in assets under management.

"When we talk to clients around the world, this is by far the hottest topic and the question clients ask the most: Why is the United States running such a large fiscal deficit when the economy is so strong, and how long can this last?" he said. "The answer is always: We don't know either."

Ivanshin said the current fiscal situation in the United States is "bad," but still manageable. However, at some point, when markets start demanding a high premium to hold U.S. Treasuries, or when the cost of servicing public debt becomes a major political focus, people may judge the rising government debt level, but that's not the case now.

Dollar rebounds, U.S. Treasury yields rebound

The dollar rebounded against most major currencies on Tuesday, and U.S. Treasury yields also rebounded, putting some pressure on gold prices.

The entire stock market is also undergoing a reassessment, with the Nikkei index rising 10% on Tuesday after falling 12% the day before, and European stocks also rebounded.

"I wouldn't be surprised if the market volatility is not over, but it's clear that the sharp fluctuations seen on Monday have normalized to some extent," said Axel Merk, president and chief investment officer of Merk Investments.

"It looks like some of the moves in the past few days have been a bit overdone. We are seeing safe-haven demand fading and fund flows in most major currency pairs returning to normal to some extent," said Schamotta, chief market strategist at Corpay.

The dollar index rose 0.18% to 102.89 in late trading on Tuesday.

According to the CME FedWatch tool, traders currently expect the Federal Reserve to cut interest rates by 110 basis points this year, with the probability of a 50 basis point cut in September approaching 70%, down from 83% on Monday.

Federal Reserve policymakers on Monday pushed back against the view that weaker-than-expected July jobs data means the economy is heading for a recession, but also warned that the Fed will need to cut interest rates to avoid that outcome.

Treasury yields rose on Tuesday as markets viewed fears of a quick U.S. recession as overblown and safe-haven demand for Treasuries as stocks recovered.

Treasury yields fell to more than a year low on Monday as investors repriced in a quick rate cut from the Federal Reserve after Friday's July jobs report showed an unexpected rise in unemployment and fewer jobs added than expected.

"We really had two shocks last week," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott. "The first shock was a downside shock, evidenced by Friday's nonfarm payrolls report and signs of a slowing labor market. The second shock was a positioning shock, related to the divergence in policy between the Bank of Japan and other major central banks around the world." Put those two things together and you're going to get some volatility," LeBas added, but "it's pretty foolish to think there's a very high probability that the Fed will cut rates between meetings when the economy is still growing and there's no obvious crisis." "

San Francisco Fed President Mary Daly said on Monday that many details in the jobs report give "more room for confidence that we are slowing but not falling off a cliff."

Chicago Fed President Goolsbee also cautioned against reading too many signals from the global market sell-off, noting that it stems in part from the Bank of Japan's decision to raise interest rates last week and growing geopolitical tensions in the Middle East.

U.S. service sector activity data released on Monday also boosted confidence in the economy, rebounding from a four-year low in July, driven by a rebound in new orders and the first increase in jobs in six months.

Despite the relative calm in the market on Tuesday, there are still concerns that the Fed will be too slow to cut interest rates.

Monetary policy will take effect with a certain lag, "You have to act before this deterioration occurs," said Will Compernolle, macro strategist at FHN Financial. "Because the labor market itself is an economic lagging indicator, the Fed seems to be really behind the development of the situation. "

Compernolle said that given the long time until the Fed's September meeting, Fed Chairman Jerome Powell may use the Jackson Hole Economic Policy Symposium on Aug. 22-24 to "ease policy in a way that doesn't cut rates -- using forward guidance to actually cut rates before the Fed actually cuts rates."

The rate-sensitive two-year Treasury yield rose 10 basis points to 3.983% on Tuesday after falling to 3.654% on Monday, the lowest since April 2023.

The 10-year Treasury yield rose 10.5 basis points to 3.888% on Tuesday after hitting 3.667% on Monday, the lowest since June 2023.

Iran faces a dilemma

The leader of Hezbollah pledged on Tuesday to respond "strongly and effectively" to Israel's killing of its military commander last week. "response, whatever the consequences, and said Hezbollah would act alone or with its regional allies.

But the U.S. sent a message to Iran: Don't escalate at a 'critical moment' in the Middle East.

The United States has been urging other countries through diplomatic channels to tell Iran that escalation in the Middle East is not in their interest at what Secretary of State Blinken called a "critical moment" for the region, a State Department spokesman said on Monday. Blinken said Washington is "engaging in intense diplomatic activity around the clock" to help calm tensions amid concerns that Iran is preparing a retaliatory strike on Israel. "One of the focuses of our engagement is to urge countries to send a message to Iran, urging countries to make it clear to Iran that it is not in their interest to escalate the conflict and it is not in their interest to attack Israel again," said Miller, a State Department spokesman.

Russian President Vladimir Putin also asked Iran's Supreme Leader Ayatollah Ali Khamenei to respond with restraint to Israel's alleged killing of the Hamas leader and advised against attacks on Israeli civilians, two senior Iranian sources said.

Iran is facing a dilemma as it considers how to strike meaningfully against Israel without sparking a war that could engulf the Middle East, with Iranian retaliation widely seen as imminent a few days ago being delayed.