Gold price breaks out of descending parallel channel
Gold price rallied in the first half of the trading week, breaking out of a bearish trend that had dominated XAU/USD price action for most of February. This recent surge was halted early on Thursday as US Treasury bond yields gathered strength and supported the US Dollar. 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 are watching the US Treasury bond yields, which in the case of the benchmark 10-year bond, have seen a rally past the 4% resistance and is nearing levels not seen since last October. Due to the inverse correlation of Gold price with the US Treasury yields, this could provide further downward pressures on XAU/USD.
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.
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. The gold price went on a big downtrend from there, reaching year-to-date lows just above $1,800, where it found support.
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. The gold price went on a big downtrend from there, reaching year-to-date lows just above $1,800, where it found support.