XAU/USD Rises as Dollar Weakness And China Boost Gold

Gold prices continue to rise, with the XAU/USD trading around the $2,010-$2,011 region on Monday morning, as a result of a reassessment of the Federal Reserve's interest rate hike cycle and the easing of the US dollar. Despite mixed economic data, Fed Governor Christopher Waller called for further rate hikes on Friday, stating that the job was not yet done and inflation remained far too high. This led markets to price in a higher probability of another 25 basis point lift-off at the next FOMC meeting in May.

The US dollar's modest strength has been curbed by the recent release of softer consumer inflation and the Producer Price Index, as well as China's robust economic recovery, which saw the nation's GDP grow by 4.5% year-on-year in the first quarter. The weakened dollar has made gold more appealing to holders of foreign currencies, as it has lowered the cost of the dollar-denominated asset for overseas buyers.

However, gains in gold prices have been limited by uncertainty over the Federal Reserve's monetary policy stance. Investors are seeking clarity on the matter, which has impacted gold demand. In the meantime, traders are focusing on US macroeconomic data, including the Empire State Manufacturing Index and US bond yields, for short-term impetus.

Gold prices fell to a two-week low last week following data showing increased manufacturing activity in New York state and improved confidence among US single-family homebuilders. These developments have led to increased bets for an interest rate hike at the Fed's May meeting, with the CME FedWatch tool indicating an 86.7% chance of a 25 basis point hike. Higher interest rates can diminish gold's appeal as a hedge against inflation and economic uncertainties.

From a technical standpoint, gold prices have been trading within an ascending channel since mid-March, with the $2,000 level representing a key technical support. If bulls manage to defend this level and initiate a rebound, initial resistance lies at $2,060, followed by $2,075 and $2,095. Conversely, if selling pressure intensifies and support is breached, $1,975 and $1,940 become the downside targets.

As the Fed's blackout period begins on April 22, traders will be closely monitoring comments from officials ahead of the central bank's May 2-3 meeting. With various earnings, political, geopolitical, and central bank risks on the table, even a couple of significant risks could trigger safe-haven flows towards gold, pushing it towards record territory.

Recent US economic data, including headline inflation, PPI, and retail sales, have led to a dovish repricing of the Fed's rate path, resulting in a slight decline in real yields. As gold maintains an inverse relationship with real yields, lower real yields reduce the opportunity cost of holding gold, providing a boost to the precious metal.

The economic calendar for the US is relatively light this week, with the NAHB housing market index for April in focus. The index is expected to remain in line with the March print at 44 but remains below the 50 threshold that separates optimism from pessimism in the housing market, as high-interest rates create challenging conditions. In the meantime, gold prices may continue to fluctuate, with the potential for a correction before another move higher.