Gold Price Forecast: XAU/USD dips below $2000 on improved ISM report, as high inflation looms

Gold price slides below the $2000 barrier on a report by the Institute for Supply Management (ISM), showing that manufacturing activity is improving. However, a jump in the prices subcomponent justifies the need for higher rates in the United States (US). The XAU/USD is trading at $1982.70.

US ISM Manufacturing PMI improved but stayed at recessionary levels

Wall Street opened with gains after JP Morgan Chase, of the largest banks in the US, acquired the troubled First Republic Bank. That improved the market mood, though the ISM’s data triggered a leg down in XAU/USD’s price.

The ISM Manufacturing PMI for April remained in contractionary territory for the fifth month, after expanding for 30 consecutive months, at 47.1, higher than March’s 46.3. Delving into the data, the Orders and Production subcomponents improved but lacked the strength to enter the expansionary territory. The Prices Index jumped 4 points to 53.2, sparking speculations that the Federal Reserve (Fed) will tighten monetary conditions next Wednesday.

The XAU/USD reacted downwards, down 0.11% in the early New York session. US Treasury bond yields increased, with the 10-year benchmark note rate yielding 3.513%, gaining eight bps, a headwind for the yellow metal.

The US Dollar Index (DXY), which measures the performance of six currencies vs. the greenback, is climbing 0.33%, up at 102.009, courtesy of elevated US Treasury bond yields.

Despite the backdrop, the latest report for growth in the US), recessionary fears linger around the US economy. The Advanced Gross Domestic Product (GDP) for ¡2 2023 at 1.1% showed that the economy is slowing down. But the Core PCE, the Fed’s preferred gauge for inflation, stood at around 4.6% for the second straight month,

Therefore, the CME FedWatch Tool flashes an 88.9% chance the Fed will raise rates by 25 bps to 5.00% 5.25%. Notably, the swaps market shows a 40% chance for the first rate cut in November’s meeting.

Following today’s data, the US economic agenda will feature the JOLTs Job Openings report and Factory Orders on Tuesday. On Wednesday, the Federal Reserve monetary policy decision will be highlighted.

XAU/USD Technical Analysis

After hitting a daily high of $2005.99, the XAU/USD retreated sharply, exchanging hands below the 20-day Exponential Moving Average (EMA), which lies at $1988.60. Oscillators like the Relative Strength Index (RSI) indicators continued to show that sellers are gathering momentum, about to cross beneath the 50-midline. If that happens, XAU/USD could extend its losses toward the 50-day EMA at $1954.44, which, if cleared, the Gold price can extend its losses toward the 100-day EMA at $1906.42.