Gold price edges up despite strong US manufacturing data

• Gold price experiences slight gains in a market bolstered by positive US manufacturing activity reports.
• Surge in US Treasury yields following optimistic ISM and S&P Global reports challenges the appeal of non-yielding Gold.
• A stronger US Dollar Index curtails Gold's upward trajectory as market participants trim their bets on Fed rate cuts.

Gold price climbed on Monday, but it remained below the all-time high of $2,265. The bright metal is losing some momentum, yet it remains up 0.30% on the day. At the time of writing, XAU/USD exchanges hands at $2,240 after hitting a daily low of $2,228.

Business activity in the United States (US) picked up in March, according to the Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers Index (PMI) and to S&P Global. The former exceeded estimates and crushed February’s data, while the latter cooled but stood in expansionary territory. This data along with a robust economic outlook in the US could dent the Federal Reserve (Fed) from cutting interest rates.

The ISM Manufacturing PMI expanded for the first time since September 2022. That pushed US Treasury bond yields higher, a headwind for the non-yielding metal. Investors were prompted to take profits in the yellow metal in exchange for US treasuries, which tend to be more appealing amid expectations for higher interest rates.

 The US Dollar Index (DXY), which measures the American currency’s value against six others, stood at 104.99 and gained 0.44%, limiting the XAU/USD advance.

Daily digest market movers: Gold stays afloat but off all-time highs

• On Friday, Fed Chair Jerome Powell responded to the latest inflation data, stating it aligned with their expectations and indicating that the Fed would not overreact to these figures. This suggests that the US central bank would remain in a wait-and-see approach toward future monetary policy decisions.
• Following Friday’s report of the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE), a softer reading, sent Gold prices rallying sharply, though it retreated on Powell’s words.
• The ISM Manufacturing PMI expanded by 50.3, above estimates of 48.4, crushing February’s 47.8 reading. The Prices Paid Index increased by 55.8, its highest level since August 2022, when it hit 52.5.
• S&P Global revealed the latest revision of March’s Manufacturing PMI for the United States, which came in at 51.9, up from the previous reading of 52.2.
• After the data release, market participants diminished their bets for a 25-basis-point rate cut in June to 58% from above 60% last Friday.

Technical analysis: Gold rally appears overextended but is set to continue

The XAU/USD daily chart depicts Gold's last uptick to new all-time highs, achieved on lower momentum, as depicted by the Relative Strength Index (RSI). As Gold reached the ATH, the RSI stood at 77.21, below its highest level reached on March 11 at 84.41, suggesting a negative divergence is forming.

Nevertheless, the scenario of a mean reversion move is riskier. Still, a break below $2,200 could sponsor a pullback toward the March 8 high turned support at $2,195, ahead of extending its losses to $2,150.

Look for a break above $2,270 for a bullish resumption, which would expose $2,300.