The gold price is trading around $1,980 and is impacted by a number of opposing influences.
On Monday, gold saw strong two-way price fluctuations before eventually settling in the red, towards the lower end of a two-week trading range. The overnight drop from levels well over the $2,000 psychological threshold was fueled by the development of new purchasing around the US Dollar (USD). Which tends to drive flows away from the commodity denominated in US dollars. Indeed.
The USD Index (DXY), which measures the value of the US dollar against a basket of currencies. Retreated from a nearly two-week high reached on Friday in response to better-than-expected manufacturing data from the United States (US).
The uncertainty around the Federal Reserve’s rate-hike path prevents traders from placing bets.
According to the Institute for Supply Management (ISM). Business activity in the US manufacturing sector has reached a three-year low. However, the economy remained in contractionary territory for the sixth consecutive month due to higher borrowing costs and tighter credit. However, additional information revealed that inflationary pressures increased last month. This reiterated expectations for a 25 basis point (bps) increase at the conclusion of the two-day Federal Open Market Committee (FOMC) meeting on Wednesday. This, together with news that JPMorgan would purchase the majority of First Republic Bank’s assets, pushed US Treasury bond rates higher and supported the USD.
Meanwhile, the European Central Bank (ECB) is expected to raise interest rates again on Thursday, possibly by 50 basis points. Furthermore, markets have priced in the possibility of a 25 basis point rate hike by the Bank. in May by the Bank of England (BoE). This worked as another headwind for the non-yielding yellow metal, contributing to the overnight drop.
However, growing expectations that the US Federal Reserve will signal a pause in the policy-tightening cycle keep a lid on any meaningful upside for the USD and help the XAU/USD remain stable around $1,980 through the Asian session on Tuesday, despite looming recession risks.
The Gold is supported by looming recession worries and a small drop in the US dollar.
Traders are now anticipating the publication of the flash Eurozone Consumer Price Index (CPI). Which, coupled with the JOLTS Job Openings data from the United States. May add some momentum to the gold price. The attention, though, will remain on Wednesday’s widely anticipated FOMC policy announcement. Following this, the ECB will meet on Thursday.
The market’s focus will next move to the carefully awaited US monthly employment data, known colloquially. As the Nonfarm Payrolls (NFP) report. The important central bank events and critical US macro data should assist investors. In determining the next leg of the gold price’s directional move.
