After touching the three-month high at $2,088 in early Asian trading on Monday, gold is taking a break. As markets adjust in anticipation of the US’s high-impact economic events this week, the US dollar is trying to find its footing with the yields on US Treasury bonds. 

Technical Overview

The price of gold confirmed an upside break from a symmetrical triangle on Thursday, and as seen on the daily chart, it surged strongly on Friday.

The 14-day Relative Strength Index (RSI) is currently trading close to 69.50, indicating that there may be further upward potential. This is a relief from the overbought area.

At the multi-month highs around $2,088–$2,089, which is where the immediate resistance is currently located, the $2,1,000 mark will be tested.

A challenge of the all-time high of $2,144 is not out of the question if the purchasing trend picks up speed.

On the other hand, a quick correction towards the $2,065 support zone may be imminent if Gold buyers are unable to break through the $2,088–$2,089 resistance once more.

A persistent decline below that threshold may reveal the psychological level of $2,050.

Fundamental Overview

All eyes will be on US Federal Reserve (Fed) Chairman Jerome Powell’s two days of testimony before Congress regarding the semi-annual Monetary Policy Report (MPR) next week. Furthermore, the markets will be eagerly awaiting the US labor market report, particularly in light of the weak economic data from the previous week that increased speculation that the Fed would change course.

The Fed’s preferred inflation gauge, the US Core Personal Consumption Expenditures – Price Index (PCE) Index, fell from December’s 2.9% increase but still aligned with predictions of 2.8% YoY in January.

The US manufacturing sector’s economic activity shrank at an accelerated rate in February, according to the ISM Manufacturing PMI data released on Friday. The index fell from 49.1 in January to 47.8 in February, significantly missing the market’s projected 49.5 points.

According to the CME FedWatch Tool, markets are currently pricing in a 30% possibility that the Fed could start easing rates in May, which is slightly higher than a 20% chance from a week ago. The likelihood of a rate cut at the June meeting has increased from around 60% at the beginning of the previous week to roughly 71% currently.

The US dollar and US Treasury bond yields were negatively impacted by renewed dovish Fed predictions, which led to a severe sell-off on Friday while the price of gold surged beyond $2,050 to reach its highest level in three months.

Gold dealers will be kept occupied with lectures by many Fed policymakers and the ISM Services PMI ahead of Powell’s testimony and the important US economic data. Not to mention, China’s Caixin Services PMI, which is expected on Tuesday, will provide new insights into the condition of the world’s largest gold consumer.