Gold trades higher despite robust US manufacturing data

The market is supported by optimistic reports on US manufacturing growth in the United States, however, the price of gold slightly rises. The attraction of non-yielding gold is called into question by the increase in US Treasury yields that followed upbeat news from the ISM and S&P Global.

Gold’s rising trajectory is restrained by a higher US Dollar Index as market investors reduce their bets on a reduction in Fed rate cuts. Although the price of gold increased on Monday, it was still below the record high of $2,265 per ounce. Even if the shiny metal is losing some of its velocity, it is still up 0.30 percent for the day. XAU/USD is trading at $2,240 at the time of writing, having fallen as low as $2,228 on the day.

According to S&P Global and the Manufacturing Purchasing Managers Index (PMI) of the Institute for Supply Management (ISM), business activity in the United States (US) increased in March. The latter dropped but remained in expansionary territory, while the former exceeded projections and demolished February’s numbers. The US economy is expected to grow, which could discourage the Federal Reserve (Fed) from lowering interest rates.

It was the first expansion of the ISM Manufacturing PMI since September 2022. This increased the yield on US Treasury bonds, which hurt the non-yielding metal. In response to forecasts of increased interest rates, investors were urged to take profits in the yellow metal and switch to US treasuries, which are often more tempting.

The XAU/USD advance was restrained by the US Dollar Index (DXY), which tracks the value of the US currency against six others. As of 104.99, it had increased by 0.44%.

In response to the most recent inflation data, Fed Chair Jerome Powell said on Friday that it was in line with their expectations and that the Fed would not overreact to the numbers. This implies that when it comes to future monetary policy decisions, the US central bank would continue to adopt a wait-and-see attitude. Gold prices spiked higher on Friday after the Fed’s favourite inflation indicator, Personal Consumption Expenditures (PCE), showed a lower reading. However, gold prices fell in response to Powell’s remarks.

The ISM Manufacturing PMI increased by 50.3, surpassing forecasts of 48.4, and shattering the level from February of 47.8. After rising by 55.8, the Prices Paid Index reached its highest point since August 2022, when it was 52.5. The most recent version of the US Manufacturing PMI for March was released by S&P Global, and it showed an increase to 51.9 from 52.2.
Following the data’s release, traders reduced their bets on a twenty-five basis point rate cut in June, which was above 60% last Friday, to 58%.

From a technical perspective, gold’s recent surge seems to have peaked but is expected to continue. The Relative Strength Index (RSI) on the XAU/USD daily chart illustrates Gold’s most recent surge to new all-time highs, which was accomplished on less momentum. The RSI was at 77.21 when Gold hit the ATH, below its peak of 84.41 on March 11; this indicates a bearish divergence is developing.

However, the situation involving a mean reversion move carries greater risk. However, a decline towards the high turned support of March 8 at $2,195 might be prompted by a breach below $2,200, and the market may then extend its losses below $2,150. For a bullish resumption that would expose $2,300, watch for a break over $2,270.