Gold price consolidates after mixed US data

In spite of lower yields supporting gold, the US dollar has increased and is now weakening the Gold Index (XAU/USD). Geopolitical concerns are causing central banks to raise their gold holdings, according to a recent report. At the time of writing, the price of XAU/USD is $1,979.64.\

After halting in its intraday gain, the Gold Index (XAU/USD) is currently consolidating in a range near the $1,990s. Gains were restrained by pressure from a rising US dollar, despite decreasing yields as a result of increasing concerns about the global financial crisis.

A bull flag is developing, and if it activates, it might lead to a sharp increase in the price of the precious metal. The US PMI and Durable Goods Orders data were mixed, failing to provide traders with a clear indication of the metal’s next move.

The Dollar Index (DXY) has risen from the monthly lows that it reached on Thursday in the 101.90 range. At that time, it produced a bullish hammer candlestick on the daily chart, indicating a turn around following March’s steep loss. The Friday showing of the strongest bullish confirmation to date has started to work against XAU/USD.

US data releases had little to no effect on the price of gold or the US dollar. Durable Goods Orders improved from January’s -5.0% print to a better -1.0% in February, but fell short of the 0.6% anticipated. Durable goods excluding defense and those excluding transportation both fell short of forecasts, finishing at -0.5% and 0.0%, respectively.

The US Manufacturing and Services PMI both came in over two points above consensus expectations, at 49.3 and 53.8, respectively, helping to mitigate the negative effects of the disappointing Durable Goods data. The Federal Reserve can now focus on bringing inflation to target instead of worrying about more bank runs, James Bullard of the Federal Reserve said in remarks that downplayed threats to the banking sector from overly high rates.

While concerns about the soundness of Europe’s banking system reappeared, US Treasury yields fell substantially earlier and have now stabilized. Following a surge in credit default swaps, European banking equities suffered severe losses, with shares of Deutsche Bank and Commerzbank plunging more than 10%.  

Nevertheless, economists who believe that market expectations for the Fed’s policy are less aggressive in anticipating the central bank to cut rates this year warn that the support to the gold price supplied by lower yields may not last for long.

The market currently anticipates that important US interest rates will be reduced before the year is over, which has recently given the gold price some new life. Traders, however, think that the market will be obliged to revise its anticipation of a quick turnaround in interest rates once more. This could put pressure on XAU/USD once more.

It is important to remember that the price level affects physical demand: Switzerland Gold exports show that, at least in February, demand for gold was significantly greater in China and India due to reduced prices. The strength of China’s imports of gold from Hong Kong should also be revealed. According to a report by the French bank Société Générale, due to geopolitical polarization, central banks in non-Western regions of the world are “de-Dollarizing” and diversifying into Gold.

The faster non-Western nations will be willing to distance themselves from the Dollar, the longer the Russia-Ukraine crisis lasts. This will motivate central banks to keep up their substantial gold acquisitions. The central banks of non-aligned nations should maintain de-dollarizing their holdings and continuing to purchase gold (6% of our allocation, unchanged), which will eventually be underpinned by lower real yields, says Soc Gen.