Gold prices (XAU/USD) have attracted buyers for the fourth consecutive day, hovering near the highest level since December 28, as a combination of factors bolsters the precious metal’s appeal. The disappointing release of the US ISM Manufacturing PMI and the University of Michigan’s Consumer Sentiment Index on Friday, coupled with less-hawkish remarks from Federal Reserve (Fed) officials, has reinforced expectations for a June rate cut. This has put pressure on the US Dollar (USD) bulls, creating a favorable environment for gold.
The softening of US equity futures also contributes to the upward momentum of the safe-haven gold prices. However, the potential for aggressive directional bets appears limited, with traders seeking further cues regarding the Fed’s stance on rate cuts. Investors are closely watching Fed Chair Jerome Powell’s congressional testimony, expecting it, along with the upcoming US Nonfarm Payrolls (NFP) on Friday, to provide crucial insights into the future trajectory of XAU/USD.
The daily market digest highlights the ongoing support for gold prices driven by bets on a Fed rate cut and subdued demand for the US Dollar. The ISM survey revealed a quicker-than-anticipated contraction in business activity within the US manufacturing sector in February, with employment dropping to a seven-month low. The US ISM Manufacturing Index fell to 47.8 from January’s 49.1, accompanied by a decline in the New Orders Index to 49.2. Additionally, the Prices Paid Index dipped to 52.5 from 52.9 in the previous month.
The University of Michigan’s Consumer Sentiment Index also missed estimates, dropping to 76.9 in February, while inflation expectations remained in line with forecasts.
Statements from various Federal Reserve officials contributed to the weakening of the US Dollar. Chicago Federal Reserve President Austan Goolsbee emphasized the restrictive nature of the policy rate, and Dallas Fed President Lorie Logan suggested slowing the pace of balance sheet reduction. Fed Governor Adriana Kugler expected progress on disinflation, while Richmond Fed President Thomas Barkin predicted an overall decline in inflation in the coming months. Fed Governor Christopher Waller proposed an increase in the central bank‘s share of short-term Treasuries, exerting downward pressure on US Treasury bond yields.
A softer risk tone in the market also supports the safe-haven appeal of XAU/USD, but the upside potential is tempered by anticipation of key US data and Fed Chair Jerome Powell’s testimony.
From a technical perspective, the breakout above the $2,062-2,064 resistance barrier on Friday signaled bullish momentum. However, the Relative Strength Index (RSI) near the overbought zone suggests the need for near-term consolidation before a potential extension of the uptrend. The $2,064-2,062 region acts as immediate support, while sustained weakness might expose the 50-day Simple Moving Average (SMA) support near $2,034, indicating a potential shift in favor of bearish traders.
On the upside, the $2,088 zone, a two-month high reached on Friday, poses an immediate hurdle before the $2,100 round figure. Further upward movement could target the $2,025-2,030 intermediate hurdle on the way to the all-time peak around the $2,144-2,145 zone, reached in early December.
