- Gold price bulls come alive in a bullish reversal week.
- US Dollar retraced a bit despite surging US Treasury 10-year bond yields.
- ISM Services PMI release is still awaited for fresh impulse on XAU/USD.
Gold price bulls have returned to action this week, helping the bright metal break out of a bearish trend that had dominated XAU/USD price action during February. What has been more impressive is that Gold has been able to rally despite US Treasury bond yields gathering strength, which usually supports the US Dollar and weighs on yield-less commodities.
Gold news: Chinese PMI boost
Strong PMI data from China, both in Manufacturing and Services sectors, has really helped Gold price to pick up demand, as the Asian giant is a huge yellow-metal market. Gold traders now await more Federal Reserve clues, which could come from Fed officials’ speeches and Friday’s ISM Services PMI.
In the meantime, investors keep watching the US 10-year Treasury bond yield market, which rallied past the round 4% resistance on Wednesday and remains above this crucial level. The usual inverse correlation of Gold price with the US Treasury yields could provide downward pressures on XAU/USD if yields stay high, but a retracement in that bond market could propel the bright metal on a notable surge.
United States Services PMIs on the way, watch for inflation clues
The Institute of Supply Management (ISM) will publish the Services PMI on Friday at 15 GMT. If this report reaffirms that rising wage costs are feeding into accelerating price pressures in the sector, the US Dollar is likely to hold its ground against Gold. Hence, the Prices Paid Index component will be watched closely by market participants.
It’s worth noting, however, that the CME Group FedWatch Tool shows that markets are fully pricing in at least two more 25 basis points Federal Reserve rate hikes in March and May. Additionally, the probability of the Fed holding the policy rate unchanged in June stands at 25%.
The market turnaround has confirmed that the US Dollar does not have a lot of room on the upside, at least until the February jobs report and inflation data confirm or refute one more 25-bps hike in June.
Gold price fundamentals are bullish, ANZ says
ANZ strategists explain why they believe Gold price should rally in the foreseeing future:
Gold prices came under pressure amid mounting expectations of US rates staying higher, which gave fresh support to the USD. Rising US yields weighed on the non-yielding yellow metal, as it increases the opportunity cost.
While market expectations around the Fed’s stance are likely to guide Gold in the short-term, we see the macro backdrop remaining supportive for Gold with the Fed pausing its hiking cycle and the USD resuming its downtrend.
Gold price: Chinese economy re-opening and risk sentiment dynamics
China’s zero-covid policy ended at the end of 2022, and the second-largest economy re-opening effects should spill over throughout 2023. One of the biggest takeaways is that this should bump Gold demand, as China (and India) are two of the biggest world Gold consumers and purchasers. Of course, the performance of the US Dollar will be vital in assessing how big this rise in demand can be, as both the Chinese Yuan (CNY) and the Indian Rupee (INR) have been underperforming badly against the USD – the INR, in particular, hit an all-time low in October 2022.
All in all, the fact that Gold price might react positively to positive economic developments in China reinforces the idea that the yellow metal might have conceded the status of being the ultimate safety net for traders and asset managers to the mighty US Dollar. Market sentiment is not always a straightforward dynamic, and that might change over the course of the year, but Gold might be, these days, more of a risk-on asset than a safe-haven one.
Gold price in 2023: Up-and-down action
Financial markets have been a two-tale story for the early part of 2023, in which Gold price has reflected in its price action like no other asset. XAU/USD rode an uptrend during all of January with the market optimism about inflation slowing down and constant Federal Reserve dovish talk, only to see a drastic turnaround back to the old dynamics in February after a hot US Nonfarm Payrolls (NFP) report. The US economy adding more than 500K jobs in the month of January shifted the market expectations for the Fed easing its monetary policy, and the US Dollar has come back to the market King throne.
Gold price opened the year at $1,823.76 and reached a year-to-date high of $1,960 on February 2, right in between the first Federal Reserve meeting of the year and the surprising release of the US jobs report for January. Gold price went on a big downtrend from there, reaching year-to-date lows just above $1,800, where it found support.
Gold price daily chart
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