Gold price holds gains near fresh record highs of $2,300 on weak US Dollar

  • Gold price tests the $2,300 region as the US Dollar extends its correction.
  • Weak US Services PMI report voiced concerns over the economic outlook.
  • US yields rise as Fed rate cut expectations for June ease further.

Gold price (XAU/USD) is slightly down after securing another fresh record high above $2,300 in Thursday’s early New York session. The precious metal has benefitted from the soft US Dollar, knocked down after the United States Institute for Supply Management (ISM) delivered a weak Services PMI report for March.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, extends its downside to 104.00. 10-year US Treasury yields fall to 4.34% on upbeat market mood. While market expectations for the Federal Reserve (Fed) starting to unwind its higher interest rate stance in the June meeting have eased. The CME FedWatch tool shows that traders are pricing in a 58% chance that the Fed will trim interest rates in June, down from 70% a week ago. 

Meanwhile, investors await the release of the US Nonfarm Payrolls (NFP) report for March, which will be published on Friday. The US NFP report is expected to show US employers added 200K fresh payrolls over the month, lower than the former reading of 275K. The Unemployment Rate is anticipated to remain steady at 3.9%. Average Hourly Earnings, which gauge wage growth and provide significant guidance on the inflation outlook, are expected to rise at a slower pace of 4.1% from 4.3% in February on a year-on-year basis. 

Robust wage growth and labor demand could further dampen Fed rate cut expectations for June, while easing labor market conditions could boost rate cut hopes. This last scenario would likely have a negative impact on US yields and likely help Gold edge further up. 

In the late European session, the US Department of Labor reported weekly jobless claims data for the week ending March 29. Individuals claiming jobless benefits for the first time were higher at 221K than expectations of 214K and the prior reading of 212K, revised higher from 210K.

Daily digest market movers: Gold price exhibits strength, US Dollar weakens

  • Gold price rallies above the round-level figure of $2,300, supported by weakness in the US Dollar. The US Dollar faces an intense sell-off as poor United States ISM Services PMI for March deepened uncertainty over the interest rate outlook.
  • Fed policymakers have been reiterating that there is no urgency for rate cuts as they lack confidence that inflation will sustainably return to the desired rate of 2%. The strong US economic outlook and tight labor market conditions are keeping inflation pressures high. However, the weak US Services PMI report has cast some doubts over the US economy's resilience.
  • The Services PMI surprisingly fell to 51.4 in March, missing expectations of 52.7 and below the former reading of 52.6. Subindexes such as New Orders and Prices Paid also fell sharply. The Services PMI gauges business activity in the service sector, which accounts for two-thirds of the US economy. A sharp decline in the Prices Paid measure indicates easing price pressures, while the decline in the New Orders index suggests slowing demand.
  • Market expectations for the Fed pivoting to rate cuts in the June meeting have eased after Atlanta Fed President Raphael Bostic delivered hawkish guidance and Fed Chairman Jerome Powell reiterated the need for more data before pivoting to rate cuts.
  • On Wednesday, Raphael Bostic said on CNBC he sees the central bank reducing interest rates only once in the last quarter this year. Bostic expects inflation to return to the 2% target in 2026. He added: "The economy is maintaining the strong momentum it has had."
  • Jerome Powell maintained the baseline that rate cuts will start later this year only when policymakers have greater confidence that inflation is moving sustainably down. "Recent readings on both job gains and inflation have come in higher than expected," he said.

Technical Analysis: Gold price tests $2,300

Gold price is consistently refreshing its lifetime highs supported by multiple tailwinds. The precious metal tests the round-level figure of $2,300. However, it struggles to continue its winning streak for the seventh trading session on Thursday. 

Extremely overbought momentum oscillators are encouraging expectations for a slight correction. The 14-period Relative Strength Index (RSI) hovers near 80.00.

The near-term demand is strong, as the RSI has been consistently oscillating in the bullish range of 60.00-80.00 for more than a month.

All short-to-long-term Exponential Moving Averages (EMAs) are sloping higher, also suggesting strong near-term demand. On the downside, the March 21 high at $2,223 is the major support area.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.


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