Gold latest: XAU/USD pushing to new highs despite stronger PMIs

XAU/USD remains remarkably strong despite the US dollar pushing to a four-and-a-half-month high. Reports continue to suggest that the move higher in gold is related to expectations of lower rates from the Fed, but the recent data suggests otherwise. On Friday, Fed Chair Jerome Powell made clear that the strengthening economy left him in no rush to cut rates, while the decline of inflation was still vague with progress towards the 2% target being too slow.

Furthermore, the supply manager surveys of manufacturing released on Monday evidenced that the US industry is back into expansionary territory for the first time since 2022, and the prices they report paying are rising at the fastest rate in more than a year. This suggests less need to cut rates.

That said, whilst the short-term bullishness doesn’t seem to be driven by expectations of lower rates, it does allow the longer-term appetite to remain strong. Regardless, of the timing, chances are high that rates will be lower at the end of the year, even if just by 25 basis points. The reduction in the number of cuts expected may have limited some of the upside, but the fact that rates are still on the cards for this year keeps gold supported. Markets are currently pricing in a 55% chance of a cut in June.

What is keeping XAU/USD moving higher in the short term is continued geopolitical risks. Gold’s safe-haven appeal has increased since tensions between Russia and Ukraine escalated once again a few weeks ago. Renewed concerns about China’s property market and mounting risks of Japanese FX intervention are also keeping investors on edge, increasing the demand for gold in portfolios for diversification.

The daily XAU/USD chart has been evidencing overbought conditions since last Wednesday but that hasn’t stopped the bullish momentum from gathering pace. The price is at all-time highs so resistance is hard to pinpoint but Monday’s high at $2,265 may be a good place to start. The RSI, on the other hand, is still a way from the highs seen on March 11 suggesting there is still further bullish momentum. Given the price has moved beyond the high back then if the RSI does not push above 85 in the coming days, we could be facing an RSI divergence, suggesting XAU/USD is in for a sustained pullback.

XAU/USD daily chart

Past performance is not a reliable indicator of future results.