In the early New York session on Monday, the price of gold (XAU/USD) encountered selling pressure as it approached fresh all-time highs around $2,265. The decline in the precious metal’s value coincided with a surge in the US Dollar following the release of optimistic data from the United States Institute of Supply Management (ISM) regarding Manufacturing Purchasing Managers’ Index (PMI) for March.
The ISM’s report revealed a significant milestone, with the Manufacturing PMI surpassing the 50.0 threshold for the first time in 16 months. This milestone suggests a shift from contraction to expansion in the US manufacturing sector. Specifically, the Manufacturing PMI rose to 50.3, exceeding both expectations (48.4) and the previous reading (47.8), while the New Orders Index saw a notable increase from 49.2 in February to 51.4.
The robust performance of the US manufacturing sector bolstered the US Dollar Index (DXY), which tracks the dollar against six major currencies, pushing it to 104.90. The positive factory data signals a strong recovery in the US economic outlook, contributing to a bullish sentiment for the near-term demand of the dollar.
Despite the downward pressure on gold in the face of a strengthening dollar, the precious metal continues to demonstrate resilience. Expectations for the Federal Reserve (Fed) to consider interest rate cuts in June have mounted, fueled by Chair Jerome Powell’s acknowledgment of easing price pressures indicated by February’s core Personal Consumption Expenditures inflation (PCE) data.
The prospect of rate cuts by the Fed, following a period of two years marked by rate hikes, has dampened yields on interest-bearing assets like US bonds. Consequently, this has enhanced the appeal of gold as an investment option. Although 10-year US Treasury yields experienced a slight uptick during Monday’s European session, they have since retreated to 4.20%.
In summary, while gold faces selling pressure near record highs amidst a robust US Dollar and positive manufacturing data, its long-term strength remains intact, buoyed by expectations of Fed rate cuts and subdued yields on alternative investments.
