Gold Edged Lower As Investors Stay Cautious Ahead Of U.S. Data

 | Aug 02, 2017 07:01AM ET

GOLD edged lower as investors stay cautious ahead of U.S. data
Macroeconomic overview: A gauge of U.S. factory activity slid from a near three-year high in July amid a slowdown in new orders and consumer spending barely rose in the prior month, setting the stage for a moderate economic expansion in the third quarter. That was reinforced by other reports on Tuesday showing motor vehicle sales in July recorded their biggest year-on-year drop in nearly seven years. A plunge in construction spending in June suggested the government could cut its second-quarter GDP growth estimate.


The Commerce Department reported last week that the economy grew at a 2.6% annual rate in the April-June period, accelerating from the first-quarter's tepid 1.2% pace. The Institute for Supply Management (ISM) said its index of national factory activity fell to 56.3 last month from 57.8 in June, which was the highest level since August 2014. A reading above 50 in the ISM index indicates an expansion in manufacturing, which accounts for about 12% of the U.S. economy. Manufacturing is slowing as a boost from the energy sector ebbs after a burst in oil well drilling activity. It is also being hurt by declining automobile production as companies respond to falling sales that have left them with an inventory bloat. Motor vehicle output has dropped for three straight quarters.


In June, personal income was unchanged.

That was the weakest reading since a 0.1% dip in November 2016 and followed a 0.3% increase in May. Wages and salaries rose 0.4% in June. Income at the disposal of households after accounting for inflation fell 0.1%, the largest decrease since last December.


In another report, the Commerce Department said construction spending in June tumbled 1.3%, to the lowest level since September 2016.


Construction spending was weighed down by a 5.4% plunge in public investment, which was the biggest decline since March 2002. The drop occurred across federal, state and local governments. Hopes that President Donald Trump's vow to boost infrastructure spending would kick off a construction boom have now largely faded.


Investors are waiting toady for the U.S. ADP jobs report and comments by San Francisco Fed President John Williams and Cleveland Fed chief Loretta Mester. Investors are probably looking for some further evidence of stronger inflation numbers before they get a little bit more optimistic about a rate hike, which would clearly be a headwind for gold prices if the probability of that starts to rise.


Technical analysis: Spot gold may break support at 1,264 per ounce and fall to the next support level at 1,258, as suggested by its wave pattern and a Fibonacci retracement analysis