Gold Prices Drop as the Dollar Rekindles its Rally

Key Insights

• Gold prices dropped on Monday.
• The dollar restarted its rally.
• Treasury yields rose despite a soft manufacturing report.

Gold prices dropped on Monday after finishing last week in the red. The dollar rekindled its rally, moving higher as interest rates rose. Since gold is quoted in dollars, a strong dollar generally weighs gold prices. Treasury yields rose, despite a softer than expected ISM Manufacturing report.

Purchasing manager’s surveys are pointing to weakness in sentiment. The ISM’s index of national factory activity fell to a reading of 55.4 last month, the lowest since July 2020, from 57.1 in March. Expectations were for the index to rise to 57.6.

The second straight monthly decline in the index also reflects spending rotating back to services like travel. The ISM survey’s forward-looking new orders sub-index dropped 53.5 from 53.8 in March. The survey’s measure of supplier deliveries rose to 67.2 from 65.4 in March.

Technical Analysis

Gold prices fell on Monday. Support is seen near the 200-day moving average at 1,834. Resistance is seen near the 20-day moving average eat 1,932. The 20-day moving average has crossed below the 50-day moving average, which means a medium-term downtrend is now in place.

Short-term momentum has reversed and turned negative as the Fast Stochastic generated a crossover sell signal. Prices are oversold as the fast stochastic prints a reading of 7 below the oversold trigger level of 20.

Medium-term momentum has turned negative as the MACD generates a crossover sell signal. This occurs as the 12-day moving average minus the 26-day moving average crosses below the 9-day moving average of the MACD line. The  MACD (moving average convergence divergence) histogram has a negative trajectory that points to lower prices.