XAU/USD: near new 9-week lows

 
 
 
 
 
 
 

At the time of writing, the DXY index is near 102.58, just below today's high of 102.77, and it looks like the DXY may soon break its two-year high to rise above 103.00. 

DXY Chart

Received on Tuesday from the US fresh macro data pushed the dollar to new heights.

Thus, March data on orders for durable goods in the United States indicated an overall increase in volume by +0.8% after declining by -1.7% in February, while the volume of orders for durable goods, excluding transportation, rose by +1.1% (against the decrease in February by -0.5% and the forecast for growth by +0.6%). Rising figures indicate the confidence of American consumers. Despite the fact that the Conference Board's consumer confidence index, also released yesterday, fell to 107.3 in April (against 107.6 in March), it remains high and indicates continued economic growth in the 2nd quarter and the propensity of households to spending, which is one of the key drivers of US economic growth.

The composite manufacturing index in the US Mid-Atlantic region in April rose to 14 from 13 in March, exceeding economists' forecast (index value of 10), indicating an increase in activity in the Richmond Fed's area of ​​responsibility, which includes Virginia, North Carolina, South Carolina, DC , Maryland and most of West Virginia.

In the short term, the dollar may receive support from several factors, economists say. First of all, these are fears related to the aggressive tightening of the Fed's monetary policy. The yield on 10-year US government bonds rose last week to 2.981%, the highest level since December 2018. Investors sell government bonds in anticipation of rising interest rates. Investor concerns about the latest strain of Covid-19, the prospects for global economic growth amid the military conflict in Ukraine, leading to risk aversion and increased demand for safe-haven assets, are also supporting the dollar.

The dollar is totally strengthening in the foreign exchange market, including in relation to other popular safe assets such as the yen, franc, gold. Thus, the quotes of this precious metal updated today the 9-week low near the mark of 1887.00 dollars per ounce.

XAU/USD Chart

Market participants are looking forward to the May meeting of the Fed, at which its leaders are likely to tighten the existing parameters of monetary policy and raise interest rates by 50 basis points, as well as announce the start of reducing the central bank's balance sheet.

Gold quotes are extremely sensitive to changes in the policies of the world's largest central banks, primarily the Fed. When their interest rates go up, gold quotes tend to go down. However, gold has upside potential as it is a popular defensive asset in a situation of rising inflation, geopolitical and economic uncertainty. Investors will be keeping a close eye on the Fed's actions and how it handles rising inflation without hindering the growth of the US economy. If market participants see that inflation continues to grow despite the efforts of the Fed to contain it, and geopolitical tensions worsen in the world and economic conditions worsen again, they will again prefer gold to other defensive assets, including the dollar.