- Gold price dives on a surprisingly positive US S&P Global PMIs.
- Improvement in business activity in the US bolstered the US Dollar.
- The US Federal Reserve is expected to hike rates by 25 bps at the May meeting – FedWatch Tool.
Gold price plunges below $2,000 and hit a daily low of $1,971.74 after the release of economic data from the United States (US) showed that the economy continues to expand, despite recent reports flashing a recession. Therefore, XAU/USD is trading at $1,982.78, losses 1.07%, at the time of writing.
US business activity picked up, Gold tumbles
S&P Global reported the final PMI readings for the US, which surprised most investors, which were caught off guard, as shown by the market’s reaction. The S&P Global Manufacturing PMI was 50.4, above 49 estimates, while the Services rose to 53.7, exceeding the consensus of 51.5. Therefore, the Composite reading was 53.5, above its previous reading.
As a result, XAU/USD spiked to $1,997.95 before tanking toward a two-day low of $1971.30, $1.5 above the S3 daily pivot point and shy of testing the weekly low of $1,968.80. Conversely, US Treasury bond yields climbed, as the report signals that inflation could rise, with 2s and 10s, gaining each three basis points, at 4.184% and 3.564%, respectively.
In the meantime, the CME FedWatch Tool, which forecasts the next move of the US Federal Reserve (Fed), keeps odds at 88% for a 25 bps rate hike at the May 2-3 meeting. Hence, the greenback is pairing some of its Thursday’s losses, as shown by the US Dollar Index (DXY), which tracks the buck’s performance vs. six peers, up at 0.14% at 101.936.
On Thursday, Federal Reserve officials crossed newswires. Philadelphia Fed President Patrick Harker suggested the US central bank is close to ending its campaign to control inflation. At the same time, Cleveland’s Loretta Mester believes rates should go above 5% due to high inflation. The current benchmark rate is between 4.75% and 5%.
Next on the agenda, the Federal Reserve Governor Lisa Cook will cross newswires ahead of the media blackout that Fed officials would begin, ending with the Fed Chair Powell press conference on May 3.
XAU/USD Technical Analysis
From a technical perspective, Gold finally broke below the 20-day Exponential Moving Average (EMA) at 1988.01, which could pave the way for further downside. It should be said the 20-day EMA has been dynamic support for Gold buyers, meaning that sellers must keep prices below $1,988. If XAU/USD sellers want to cement their case, a break below the weekly low of $1,969.34 could keep them on the path toward the $1,950 area before testing the 50-day EMA at $1,944.87. Otherwise, XAU’s buyers, once reclaiming $1,990, could pave the way for a retest of $2,000.
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The price of Gold has declined significantly in recent weeks as positive economic data from the US has eased concerns about a pending recession. The XAU/USD pair has dropped below $2,000 as a result, a level not seen since early July.
The optimism that economic contraction may be avoided stems from a spate of better-than-expected data releases on both the manufacturing and services PMIs. The ISM manufacturing PMI reading rose to a 10-month high last month, while the services PMI reading edged higher from a five-month low. This suggests that businesses in the US are recovering from their coronavirus-induced slowdown.
Moreover, the US Federal Reserve’s dovish stance towards monetary policy, which includes keeping benchmark rates near zero for the foreseeable future, has further eroded demand for Gold. Investors generally do not invest in safe-haven assets such as Gold when the economic outlook is rosy and the stock market is healthy.
A further decline in Gold prices may be in the cards over the next few weeks, especially if more positive economic data is released. Additionally, a weakening of geopolitical tensions between the US and China could prompt investors to shift away from Gold and into riskier assets, such as stocks and corporate bonds.
Ultimately, the direction of Gold prices over the coming weeks will depend on economic data releases. If the recovery in the US continues and economic data continues to improve, then it is likely that the price of gold will remain depressed for the foreseeable future.