- Gold price clings to gains even though the upbeat US Manufacturing PMI has improved the appeal for the US Dollar.
- 10-year US yields rise further as traders pare Fed rate cut expectations for June.
- The US NFP report will guide the next big move for Gold.
Gold price (XAU/USD) trades close to fresh all-time highs near $2,260 in Tuesday’s European session. An improved safe-haven bid has empowered Gold to offset the impact of significant jump in the US Dollar, which was driven by the robust recovery in the United States Manufacturing PMI in March.
Gold seems not ready to surrender gains on expectations that February’s core Personal Consumption Expenditure Price Index (PCE) figure, the lowest in two years, will keep the Fed on track to cut interest rates three times this year.
Going forward, the Gold price could face pressure to maintain higher levels as US bond yields have extended their upside, with 10-year US Treasury yields up to 4.34%. The rise in yields came as investors scaled back their expectations that the Federal Reserve (Fed) will pivot to rate cuts in June. Higher yields on interest-bearing assets increase the opportunity cost of holding investments in non-yielding assets, such as Gold.
This week, investors will focus on the US Nonfarm Payrolls (NFP) for March, which will be published on Friday. The labor market data could give clues about when the Fed could start reducing interest rates. In Tuesday’s session, investors will focus on the US JOLTS Job Openings for February, which will be published at 14:00 GMT. US employers are anticipated to have posted fresh 8.74 million job openings, lower than 8.863 million in January.
Daily digest market movers: Gold price clings to gains near $2,260
- Gold price hovers near fresh all-time highs around $2,260 despite multiple headwinds. Improved outlook of the US Dollar due to strong United States Manufacturing PMI and a decline in bets supporting a rate cut by the Federal Reserve in June failed to push the Gold price down.
- The divergence between the economic prospects of the US and other developed economies has strengthened the US Dollar outlook. While major developed economies struggled to deliver meager growth in 2023, the US economy grew at a robust pace of 2.5%. Adding to this, the US Manufacturing PMI has returned to expansion, strengthening the economic outlook further.
- On Monday, the US Institute for Supply Management (ISM) reported that its Manufacturing PMI came in above the 50.0 threshold at 50.3, better than expectations of 48.4 and the prior reading of 47.8. The Manufacturing PMI returned to expansion after contracting for 16 straight months.
- The US strong economic outlook has dented market expectations for the Fed to begin reducing interest rates from June. According to the CME FedWatch tool, traders are pricing in a 63% chance that the Fed will trim interest rates in June, down from 70% a week ago.
- Still, investors seem to be confident about three rate cuts this year as projected by the Fed in its latest dot plot. Fed Chair Jerome Powell said on Friday after the release of the US core PCE Price Index data for February that the latest US inflation data was “along the lines of what we would like to see.” However, Powell also acknowledged that there is no need for the Fed to rush for rate cuts.
Technical Analysis: Gold trades close to all-time highs around $2,260
Gold price trades higher, near all-time highs around $2,260. The precious metal strengthened after breaking above the prior lifetime high of $2,223 on March 21. More upside in the Gold price is possible as it is trading in an unchartered territory. All short-to-long term Exponential Moving Averages (EMAs) are sloping higher, suggesting strong near-term demand.
The 14-period Relative Strength Index (RSI) hovers near 78.00, indicating a strong upside momentum. However, signs of divergence between prices and the RSI and overbought levels could result in a correction.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
