The price of gold, measured in terms of how much gold you can buy with one US dollar (XAU/USD), is facing pressure to sell when it gets close to its highest price ever, around $2,265, during Monday’s early New York session. This drop happens because the US Dollar becomes stronger after the United States Institute of Supply Management (ISM) reports that the manufacturing sector in the US is doing better than expected in March. The ISM says that the Manufacturing PMI, which is a measure of how well the manufacturing sector is doing, went above the 50.0 threshold for the first time in 16 months. When the PMI is below 50.0, it means the manufacturing sector is shrinking. But this time, it rose to 50.3, higher than the expected 48.4 and the previous reading of 47.8. The New Orders Index also went up from 49.2 in February to 51.4.
The US Dollar Index (DXY), which shows how the US Dollar is doing compared to other important currencies, goes up to 104.90. This happens because good news about factories suggests that the US economy is getting better. Also, because there’s a lot going on in the US economy this week, people want to buy more US Dollars in the short term.
Looking at the bigger picture, gold is still doing well because more people think the Federal Reserve might decide to lower interest rates at their meeting in June. Fed Chair Jerome Powell supported this idea by saying that a drop in the core Personal Consumption Expenditures inflation data in February was okay because the Fed wants to see prices staying close to a 2% target.
People are thinking more and more that the Federal Reserve might lower interest rates, especially after raising them for two years. This makes investments like US bonds less attractive because they don’t pay as much interest. But it makes gold more valuable as an investment. The interest rates on 10-year US Treasury bonds went up a bit during Monday’s European session but then went down to 4.20%.
Daily digest market movers: Gold price falls back as US Dollar rallies
The price of gold dropped a lot after reaching a new highest price around $2,260. But overall, people still want to buy gold because they think the Federal Reserve might start lowering interest rates in June. The Fed’s boss, Jerome Powell, said that recent inflation numbers are what they want to see, which made people think more about rate cuts for June. Traders believe there’s a 68% chance that rate cuts will happen in June, up from 60% before the inflation data came out.
Even though Powell is confident that inflation is getting better, he said the Fed doesn’t need to rush to lower rates because the economy is doing well. He wants to see more improvement in inflation before making any changes to interest rates.
In February, inflation went up by 0.3%, and over the past year, it rose by 2.8%, which was expected. But the numbers from January were revised upwards, showing higher inflation than previously thought.
The Fed’s favorite measure of inflation is now at its lowest level in almost two years, which makes people think more about rate cuts for June.
This week, the most important thing to watch out for is the Nonfarm Payrolls report for March in the United States, which comes out on Friday. It will probably give us a better idea of when the Fed might start lowering interest rates.
Technical Analysis: Gold price faces pressure near $2,265
The price of gold dropped a lot after reaching a new highest price at $2,265. It got stronger after surpassing the previous highest price of $2,223, which was set on March 21. There might still be more room for the price of gold to go up because it’s trading at a price that it hasn’t reached before. All the moving averages, which show the average price over time, are going up, indicating that people want to buy gold in the short and long term.
The Relative Strength Index (RSI), which measures how fast the price is going up or down, is at 78.00, showing that gold’s price is rising quickly. But it’s already in a situation where it might be considered too expensive. There are no signs that this might change soon, so it’s possible that the price might continue to be too high for a while.
