Gold price fails to cheer US Dollar weakness

Gold price remains despite the latest rebound in Gold price, the precious metal remained downbeat in the last two consecutive weeks even as the US Dollar dropped. The reason could be linked to the easing banking fears and downbeat headlines about one of the world’s biggest Gold consumers, namely China. Though, the latest price fears emanating from the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, known as OPEC , prod the XAU/USD bulls.

That said, OPEC announced a surprise output cut and offered an upbeat start to the US Dollar Index (DXY), up 0.25% near 102.85 at the latest. However, the easing fears of the banking crisis and the mixed US data join easing hawkish bias on the Federal Reserve’s (Fed) moves to weigh on the US Dollar and keep the Gold buyers hopeful.

Talking about the data, the US Core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred gauge of inflation, declined to 4.6% YoY in February from 4.7% expected and prior. On a monthly basis, Core PCE inflation rose 0.3% while easing below the market expectation of 0.4% and a downwardly revised 0.5% previous reading. Further, the Chicago PMI reading for March was stronger than expected at 43.8pts, but this is still a relatively weak level and consistent with the slowing of the manufacturing sector in the US. On the same line, the final readings of the University of Michigan's (UoM) Consumer Confidence Index dropped to 62.0 in March, versus 63.4 flash estimations and 63.2 market forecasts. Current Economic Conditions fell from 70.7 in February to 66.3 and the Index of Consumer Expectations declined from 64.7 to 59.2.

The UoM report mentioned regarding inflation that the year-ahead expectations “receded from 4.1% in February to 3.6%, the lowest reading since April 2021, but remained well above the 2.3-3.0% range seen in the two years prior to the pandemic.” Five-year expectations came in at 2.9% for the fourth consecutive month.

Previously, the final readings of the US fourth quarter (Q4) Gross Domestic Product (GDP), also known as the Real GDP, marked an easy Annualized growth number of 2.6% versus 2.7% previous forecasts.  Though, the data published by the Conference Board showed that the Consumer Confidence Index in the US improved slightly to 104.2 in March from 103.4 in February. 

Following the data, US President Joe Biden delivered a statement following the February PCE report, highlighting the progress in the “fight against inflation”. On the same line, Federal Reserve Bank of Boston President Susan Collins and New York Fed President John C. Williams cited easing in inflation but highlighted the incoming data to determine the Fed’s next moves.

Elsewhere, China's top diplomat Wang Yi said on Friday that the US and China relations are facing challenges and difficulties. “I urge the US to stop suppression, decoupling is wrong,” Wang added. The world’s top two economies previously argued about the US links with Taiwan and the dragon nation’s ties with Russia.

Amid these plays, the CME’s FedWatch Tool suggests near 52% chances of the Fed’s 0.25% rate hike in May and puts a floor under the Gold price. On the other hand, the S&P 500 Futures print mild losses while the United States Treasury bond yields consolidate the latest losses and challenge the XAU/USD bulls.

United States Purchasing Managers’ Indexes, Employment report eyed

Looking ahead, Gold price will depend on the United States Purchasing Managers’ Indexes, employment data for March, not to forget headlines surrounding China and banking. Given the fresh hopes of firmer inflation, mainly due to the OPEC moves, the incoming data may weigh on the Gold price should they print strong numbers and allow the US Dollar to keep the latest gains.