On Monday, the price of gold experienced volatile fluctuations in trading marked by limited trading activity due to the observance of Labor Day in Europe. Gold initially surpassed the significant threshold of $2,000; however, it was incapable of maintaining its position and rapidly decreased below that level following the release of U.S. macroeconomic data that exceeded projections. As of writing, XAU/USD had declined by 0.40% to $1,990.
In April, the ISM manufacturing PMI exceeded expectations by increasing slightly to 47.1 compared to the predicted 46.8. Despite the goods-producing industry experiencing its sixth consecutive month of contraction, the survey indicated a surge in employment and prices paid components, reaching 50.2 and 53.2 respectively, from their previous levels of 46.9 and 49.2. This development has strengthened both the U.S. currency and Treasury yields throughout the curve.
US ECONOMIC DATA AT A GLANCE
The findings of the ISM survey indicate that the labor market will continue to be constrained in the short term, which may result in upward pressure on wages. Additionally, the recent increase in prices paid is worrisome as it could potentially signify an impending resurgence of inflation.
Given the current circumstances, it is possible that the Federal Reserve may choose to continue its effort to tighten monetary policy, rather than pausing in the near future. This implies that additional increases to interest rates, beyond those already anticipated for May, should still be considered as a potential outcome.
To gain greater comprehension of the Federal Reserve’s plans, it is advisable for traders to closely monitor the decisions and perspectives of policymakers during the conclusion of their May meeting. The central bank is anticipated to increase lending rates by a quarter point to 5.00-5.25% in order to reestablish stability in pricing, which would elevate the benchmark rate to its highest level in 17 years.
Given that the 25 basis point increase has already been accounted for, it is important to shift attention towards the guidance provided by the Federal Reserve. In the event that there is no indication of an imminent application of restrictive monetary policy, it is possible that yields will continue to rise, adversely affecting valuable metals and hindering their recent upward trend. Conversely, if the Federal Reserve communicates its intention to temporarily halt its actions, gold prices may swiftly rebound.
In terms of technical analysis for XAU/USD, a considerable obstacle seems to be present around the $2,000 mark. Should buyers successfully surpass this resistance, there is potential for an upward movement towards the 2023 peak. In addition, if prices continue to rise, focus will turn towards the all-time high of $2,080. Conversely, initial support is situated at $1,975 and if this level is broken, the 50-day simple moving average may serve as the subsequent point of stability.