Gold Price Forecast: XAU/USD climbs back above $1,980 level after US ISM Manufacturing PMI disappoints

• Gold price attracts some dip-buying and rebounds from a one-week low touched on Monday.
• The US Dollar surrenders its modest intraday gains and lends some support to the XAU/USD.
• Dismal US manufacturing ISM PMI data pours cold water on rising bets for more rate hikes by the Federal Reserve.

Gold price reverses an intraday fall to the $1,950 zone, or a four-day low touched earlier this Monday, and builds on its intraday ascent through the early US session. The XAU/USD is currently placed near the top end of its daily trading range, just above the $1,980 level after lower-than-expected US ISM Manufacturing PMI data for March showed a decline and a fall in the prices paid component below the key 50 level that distinguishes grow from contraction. The data suggests the US Federal Reserve will be more cautious about hiking rates in the future – a positive for Gold which moves inversely to them.

Gold gets a spur from fresh US data dissapointment

Gold picks up a bid after the US ISM Manufacturing PMI for March comes out at 46.3, falling below expectations of 47.5 and lower than the previous month's 47.7 on Monday. The prices paid component, which is of particular interest to traders because it impacts on inflation expectations and therefore the policy trajectory of the Federal Reserve, also under-shoots forecasts, coming out at 49.2 when a rise to 53.8 had been forecast, from a previous 51.3. This also reflects a watershed moment since it shows a dip below the 50 mark which distinguishes growth from contraction, suggesting prices for manufactured goods are actually falling (deflationary). The employment component also shows a fall to 46.9 versus the 49.8 expected, and new orders to 44.3 from estimates of 44.6. All in all the data weighs on the US Dollar, helping XAU/USD higher.  

The emergence of fresh US Dollar selling benefits Gold price

The US Dollar (USD) surrenders its intraday gains to a one-week high amid the uncertainty over the Federal Reserve's (Fed) rate-hike path and turns out to be a key factor driving flows towards the US Dollar-denominated Gold price. It is worth recalling that the Fed had signalled recently that it might soon pause the rate-hiking cycle in the wake of the turmoil in the banking sector. The bets were reaffirmed by the release of the ISM Manufacturing PMI data on Monday and the Personal Consumption Expenditures (PCE) Price Index data from the United States (US) on Friday, which pointed to cooling inflation. Investors, however, seem worried that a surprise production cut by major oil producers will push inflation higher and force the Fed to move back to its inflation-fighting rate hikes.

Federal Reserve rate hike bets cap gains for Gold price

In fact, the Organization of the Petroleum Exporting Countries and their allies - known as OPEC+ - shook markets by announcing further production cuts of about 1.16 million barrels per day (bpd) on Sunday. This led to a big bullish gap opening in Oil prices, reviving inflation fears and fueling speculations about further policy tightening by the Fed. The current market pricing indicates a greater chance of a 25 bps lift-off at the next Federal Open Market Committee (FOMC) monetary policy meeting in May. This, in turn, pushes the US Treasury bond yields higher, which could act as a tailwind for the Greenback and might hold back traders from placing aggressive bullish bets around the non-yielding Gold price, at least for now.

Trades look to key macro data from United States for fresh impetus

Investors will further cues from the ADP employment report on private-sector employment and ISM Services PMI on Wednesday, followed by the crucial US monthly employment report - popularly known as NFP on Friday. The latter will influence the near-term USD price dynamics and help determine the next leg of a directional move for the XAU/USD.

Gold price technical outlook

From a technical perspective, the range-bound price action witnessed over the past week or so constitutes the formation of a rectangle on the daily chart. Against the backdrop of a strong rally from the March swing low, this might still be categorized as a bullish consolidation phase and supports prospects for a further appreciating move for Gold price. Follow-through buying beyond the $1,980-$1,982 supply zone has reinvigorated bulls to place fresh bets. The XAU/USD might now aim to surpass the $2,000 psychological mark and retest a one-year high, around the $2,009-$2,010 zone touched in March.

On the flip side, the $1,950-$1,945 zone now seems to protect the immediate downside ahead of the $1,935 support zone and the $1,920-$1,918 region. A convincing break below the said support levels could negate the near-term positive outlook and prompt aggressive technical selling. The Gold price might then weaken further below the $1,900 round-figure mark, towards an intermediate support near the $1,885 level and the $1,875-$1,870 area.

Key levels to watch