Gold Prices Rebound On Weaker USD, Crude Oil Holds Breath For OPEC+ Meeting

Gold prices traded modestly higher during Thursday’s APAC morning session after rebounding 1.32% a day ago. Prices returned to above a psychological level at $1,700 as the DXY US Dollar index retreated from a four-month high. This could be attributed to a smaller-than-expected infrastructure plan announced by President Joe Biden, who aims to revamp America’s infrastructure facilities, create millions of jobs and tackle climate changes with the proposal. Yet the $2.25 trillion spending package came below market expectation of $3-4 trillion, resulting in some unwinding activity.

A weaker US Dollar provided bullion with some temporary relief, but this may not change its medium-term bearish trajectory as the longer-term Treasury yields continues to march higher on reflation optimism. The heavily watched 10-year rate hovered near its 14-month high of 1.744%, exerting downward pressure on precious metal prices. The real yield, as represented by the 10-year Treasury inflation-indexed security, climbed to -0.63% from -0.70% a week ago. A rising real yield may weigh on gold prices despite a temporary retreat in the Greenback.

Gold Prices vs. 10-year Treasury Inflation-indexed Security

(Click on image to enlarge)

Source: FRED

Friday’s US nonfarm payrolls report will be closely watched by traders for clues about the health of the labor market and its ramification for the Fed’s interest rate path. Volatility could be exacerbated by thinner trading volume as many markets are shut for the Good Friday holiday. Prior to this, ADP private payrolls added 517k new jobs in March, the most seen since September 2020, but still fell below the consensus forecast of 550k. If the nonfarm payrolls number fails to meet an estimation of 647k, this could lead to a deeper pullback in the US Dollar and buoy bullion prices. The opposite may happen if the actual number beats.

Crude oil prices were little-changed during Thursday’s APAC trading session after falling over 3.8% over the prior two sessions. Prices were facing a couple of headwinds, including a larger-than-expected build in API crude inventories, a revision down of this year’s oil demand outlook by OPEC+, and the lingering impact of a third viral wave in Europe. Against this backdrop, market participants are expecting OPEC+ to roll over its current production cut through May to stabilize prices.

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