Gold prices marginally declined after recovering to key levels in the previous session as traders anticipated further economic unrest due to an industrial slowdown and rising oil prices.
- It was a bearish Tuesday, with XAU/USD decreasing by 0.15% at $1,981.66.
- A significant drop in OPEC+ oil output makes the picture of the global economy more unclear.
- The US Manufacturing PMI has decreased the likelihood of another consecutive rate rise from the Fed.
- The Federal Reserve’s monetary policy was unpredictable, which caused gold prices to decline.
Gold Faced Pressure on Rising Hawkish Fed Expectations After OPEC+ Output Cut
OPEC+ unexpectedly reduced output on Sunday by 1.1 million barrels per day to boost prices and lower global stocks. It increased the price of oil by over 6% and raised inflationary pressure. The expected rise in oil rates for the rest of the year due to these cuts could drive global inflation, forcing Fed and other central banks to take a more hawkish attitude on interest rate rises.
Moreover, the likelihood of the Fed raising the Federal target rate by 25 basis points at the upcoming FOMC meetings has risen to 59.0%, according to the CME Fedwatch tool.
The yields on US Treasury bonds surged as investors anticipated the FOMC meeting that would probably hike interest rates. US 10-Year Bonds rose to 3.456%, while the yield on US 2-Year Bonds rose to 3.9987%.
The increase in Treasury rates has a negative effect on the price of gold. Consequently, XAU/USD decreases when Treasury Yields rise.
Meanwhile, the disappointing ISM Manufacturing PMI for the United States has weakened market sentiments and reduced hopes for another straight rate rise from Fed head Jerome Powell. The ISM manufacturing index for March dropped to 46.3 on Monday, the lowest reading since May 2020. The data has been below 50.0 for five consecutive months, raising hopes for a sustained monetary policy to prevent the US economy from entering a recession.
Furthermore, manufacturing statistics from China, the Eurozone, the United Kingdom, and Japan revealed that activity in the biggest economies in the world continued to drop through March. It fueled worries that global economic development would slow down in the upcoming months.
Additionally, the decline in industrial activity and the revelation of OPEC+’s production cut raised inflationary concerns, which may make monetary policy decisions more difficult. Fed worries regarding inflation and interest rates cause the XAU/USD to fall.
The JOLTS Job Openings report, scheduled to be released later today, is expected to show a decline, and this is why the Dollar Index (DXY) is trading down at 101.85 ahead of the release. Moreover, before Friday’s Nonfarm Payrolls report from the United States, Fed officials’ remarks will be significant to get clarity regarding Fed rate hikes. All these events will likely have an impact on Gold prices in the upcoming American trading session.