US Manufacturing PMI Exceeds Expectations, Gold Retreats from Three-Week Highs

The gold market has displayed a mixed trend this week, with prices retreating from three-week highs and stabilizing within a narrow range. While the stronger-than-expected U.S. January ISM Manufacturing PMI and higher Treasury yields have weighed on gold, uncertainties surrounding potential tariffs and protectionist policies from the new U.S. administration have provided some support for gold as a safe-haven asset. The U.S. dollar has shown strength recently, marking its fifth consecutive week of gains with a weekly increase of 0.82%. As the dollar becomes more attractive to overseas buyers, gold‘s competitiveness has been somewhat diminished. However, the Federal Reserve’s cautious monetary policy stance remains evident, with three rate cuts in 2024 and expectations of only two cuts in 2025 to address persistent inflationary pressures.

Meanwhile, U.S. manufacturing has shown some signs of recovery, but overall economic prospects remain uncertain. December‘s ISM Manufacturing PMI reached 49.3, the highest in nine months, yet still below the 50 threshold, indicating continued contraction in the sector. Analysts suggest that growth in new orders and a rebound in production may signal short-term stabilization, but uncertainties in the trade environment and potential tariff risks could hinder the industry’s recovery. Actions by businesses to preemptively procure raw materials and increase inventories suggest efforts to mitigate future cost increases, potentially adding upward pressure on inflation.

Additionally, geopolitical tensions continue to support gold as a safe-haven asset. Escalating tensions in the Middle East have introduced further uncertainty to the market. Against this backdrop, golds appeal remains intact. Historical data shows that January has typically been a strong month for gold, with prices rising 7 out of the past 10 years, averaging a gain of $38.82. This seasonal pattern could provide confidence for bulls, especially ahead of the release of critical economic data.

Looking ahead to this week, investors will closely watch the U.S. November factory orders, the Federal Reserves meeting minutes, and the December non-farm payroll report. These data points are expected to provide further insights into the trajectory of monetary policy and its implications for the gold market. Additionally, remarks from Federal Reserve officials could further clarify the policy stance. Amid the intertwined risks of economic and geopolitical uncertainties, volatility in the gold market is likely to persist. However, in the short term, bulls may find opportunities to leverage potential risk factors to push prices higher.