Gold prices rebounded on Tuesday after two consecutive days of losses. The rise in prices was attributed to the easing of the U.S. dollar, making the dollar-denominated asset more appealing to holders of foreign currencies. The U.S. dollar index was down by 0.1%, making bullion cheaper for overseas buyers. This helped push gold prices up, and XAU/USD was trading at $2001.03, up by $6.98 or 0.35% at 07:00 GMT.
Despite the rise in gold prices, gains were limited due to the uncertainty surrounding the U.S. Federal Reserve's monetary policy stance, which impacted the demand for gold. However, China's economic recovery gathered pace in the first quarter, with the country's gross domestic product growing 4.5% year-on-year, beating expectations. This development drove up demand for riskier assets, which in turn put some pressure on the U.S. dollar.
Gold prices fell to a two-week low on Monday following the release of data showing an increase in manufacturing activity in New York state for the first time in five months. Confidence among U.S. single-family homebuilders also improved for a fourth consecutive month in April, leading to an increase in bets for an interest rate hike by the Federal Reserve at its May meeting. As per the CME FedWatch tool, there is an 86.7% chance of a 25 basis point hike in May, further affecting the appeal of non-yielding bullion.
Trader focus is now on the comments from Fed officials in the coming week, as they enter a blackout period from April 22, ahead of the central bank's May 2-3 meeting. With a multitude of 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.
The forex market is closely linked to the gold market, and any changes in the U.S. dollar can affect gold prices. As the U.S. dollar weakened, it made gold cheaper for overseas buyers, leading to a rise in gold prices. However, uncertainty over the U.S. Federal Reserve's monetary policy stance limited gains in gold prices. Forex traders are now focusing on comments from Fed officials, as they could provide clarity on the matter. Higher interest rates can also affect the appeal of non-yielding bullion, further impacting gold prices. Technical analysis shows that XAU is trading above the pivot at $1927.36, and if the price crosses R1 at $2045.30, a rally towards record territory could be expected.