Gold price reaches fresh high at $2,300 on weak US Dollar

LONDON (April 4) Gold price (XAU/USD) is slightly down after securing another fresh record high above $2,300 in Thursday’s European session. The precious metal has benefitted from the soft US Dollar, knocked down after the United States Institute for Supply Management (ISM) delivered a weak Services PMI report for March.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, extends its downside to 104.00. 

10-year US Treasury yields are slightly up at 4.36% as market expectations for the Federal Reserve (Fed) starting to unwind its higher interest rate stance in the June meeting have eased. The CME FedWatch tool shows that traders are pricing in a 58% chance that the Fed will trim interest rates in June, down from 70% a week ago. Non-yielding assets such as Gold tend to face liquidity outflows when the demand for interest-bearing assets, such as US bonds, strengthens. However, this hasn’t been the case recently for Gold, which has been edging higher for several trading sessions even as yields also held up.

Meanwhile, investors await the release of the US Nonfarm Payrolls (NFP) report for March, which will be published on Friday. The US NFP report is expected to show US employers added 200K fresh payrolls over the month, lower than the former reading of 275K. The Unemployment Rate is anticipated to remain steady at 3.9%. Average Hourly Earnings, which gauge wage growth and provide significant guidance on the inflation outlook, are expected to rise at a slower pace of 4.1% from 4.3% in February on a year-on-year basis. 

Robust wage growth and labor demand could further dampen Fed rate cut expectations for June, while easing labor market conditions could boost rate cut hopes. This last scenario would likely have a negative impact on US yields and likely help Gold edge further up. 

Daily digest market movers: Gold price rises despite upbeat US bond yields

• Gold price rallies above the round-level figure of $2,300, supported by weakness in the US Dollar. The US Dollar faces an intense sell-off as poor United States ISM Services PMI for March deepened uncertainty over the interest rate outlook.
• Fed policymakers have been reiterating that there is no urgency for rate cuts as they lack confidence that inflation will sustainably return to the desired rate of 2%. The strong US economic outlook and tight labor market conditions are keeping inflation pressures high. However, the weak US Services PMI report has cast some doubts over the US economy's resilience.
• The Services PMI surprisingly fell to 51.4 in March, missing expectations of 52.7 and below the former reading of 52.6. Subindexes such as New Orders and Prices Paid also fell sharply. The Services PMI gauges business activity in the service sector, which accounts for two-thirds of the US economy. A sharp decline in the Prices Paid measure indicates easing price pressures, while the decline in the New Orders index suggests slowing demand.
• Market expectations for the Fed pivoting to rate cuts in the June meeting have eased after Atlanta Fed President Raphael Bostic delivered hawkish guidance and Fed Chairman Jerome Powell reiterated the need for more data before pivoting to rate cuts.
• On Wednesday, Raphael Bostic said on CNBC he sees the central bank reducing interest rates only once in the last quarter this year. Bostic expects inflation to return to the 2% target in 2026. He added: "The economy is maintaining the strong momentum it has had."
• Jerome Powell maintained the baseline that rate cuts will start later this year only when policymakers have greater confidence that inflation is moving sustainably down. "Recent readings on both job gains and inflation have come in higher than expected," he said.

FXStreet