Stocks and commodities fell sharply yesterday as markets reacted to unsavoury data and developments. Oil prices dropped 5% on signs of a potential resolution to the dispute that halted Libyan crude production and exports. Gold also came under pressure, initially dropping nearly $30 before partially recovering.

As of 09:00 GMT this morning, gold spot (XAU/USD)  was trading at $2,483, approaching yesterday’s low as market sentiment remained fragile. The decline followed concerning economic data from the US, where the manufacturing sector continued to contract. The S&P Global Manufacturing Purchasing Managers’ Index (PMI) dropped to 47.9 points in August from 49.6 in July, marking the steepest decline in US factory activity this year.

This economic weakness fueled risk aversion, boosting the yen and the dollar, which further pressured gold prices. Despite the current dip, gold remains supported, with major banks predicting prices could reach as high as $2,700 by year-end due to expected Federal Reserve rate cuts. The probability of a 25-basis-point rate cut in September now stands at 69%, while the likelihood of a 50-basis-point reduction has fallen to 31%. However, poor job numbers later this week could force the Fed’s hand to implement the larger cut.


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