Manufacturing industry 'shock site' hits, gold prices surge... surpassing $4,230 per ounce

US Manufacturing Indicators Signal Contraction for 9 Consecutive Months… Rate Cut Possibility Rises to 87%

The international gold market surged on unexpected weak manufacturing data from the US. Immediately after the Asian foreign exchange market opened on Tuesday, spot gold prices(XAU/USD) rose to $4,230 per ounce, hitting the highest level in the past six weeks. The buying momentum that started in the New York session continued into the Asian region.

Manufacturing Shock Site Interpreted as Pivot Signal

The direct catalyst for the rise was the weak Manufacturing Purchasing Managers’ Index(PMI) released by the US Institute for Supply Management(ISM). The November PMI registered 48.2, falling short of the expected 48.6 and the previous month’s 48.7. Now, US manufacturing has been hovering below the ‘50 line,’ the dividing point between economic contraction and expansion, for nine months. As economic weakness was confirmed by the figures, market sentiment changed rapidly.

Signals of Near-Future Fed Policy Shift… Revaluation of Zero-Yield Assets Begins

Reflected in CME FedWatch, the probability of a rate cut in December suddenly jumped to 87%. Generally, when interest rates decrease, the opportunity cost of holding non-yielding assets like gold diminishes, which is interpreted as a positive signal for the precious metals sector.

David Mager, Director of Metals Trading at Hilliard Futures, said, “The market is betting on additional rate cuts, and inflation pressures exceeding the Fed’s target remain. These two macro factors are key to supporting gold and silver’s downside.”

Dampened Chinese Demand May Form Price Ceiling

However, despite recent strong gains, there are constraints. The world’s largest gold consumer, China, is experiencing a slowdown in physical demand. Major retail distributors in China are downsizing stores due to the surge in gold prices and increased tax burdens, and small merchants are reportedly complaining of a sharp decline in sales, according to major foreign news outlets.

US Economic Data This Week Likely to Shift the Market

The market’s focus is on this week’s major US ‘employment and inflation events.’ The ADP private employment report, ISM services PMI, and the Fed-preferred Personal Consumption Expenditures(PCE) inflation index are scheduled to be released sequentially.

Analysts at securities firms believe that if these indicators come out stronger than expected, dollar buying could intensify, leading to a short-term correction in gold. Conversely, if signs of economic weakness are reaffirmed, gold could stabilize above $4,200 and gain additional upward momentum.

For the time being, the gold market is expected to continue trading in a tense environment, balancing movements in the dollar and macroeconomic indicators.