Gold prices may rise short-term after soft US ISM data crushed the US dollar

Gold prices rally the most in months as the US dollar fell; soft US ISM Manufacturing data cooled Fed rate hike bets and a rosy day for risk appetite may bode well for XAU/USD.

Gold prices rallied 2.32% on the best day in almost 6 months, extending gains since prices turned higher in late September. The yellow metal is now up over 4.7% since the September low of 1614. Helping anti-fiat XAU/USD climb higher at the onset of the fourth quarter was a weaker US dollar and softening Treasury yields.

This followed unexpectedly softer US ISM manufacturing data. The main gauged clocked in at 50.9 in September, down from 52.8 prior and versus 52 expected. Readings above 50 indicate expanding economic activity and vice versa. This means that the manufacturing gauge barely pulled off a positive print. That said, new orders and employment clocked in at 47.1 and 48.7, respectively.

Markets are quite sensitive to how incoming US economic data may shape the Federal Reserve’s plan for proceeding with interest rates. The slightest miss or beat in economic prints could likely trigger volatile reactions in various corners of financial markets. Today was no exception. While markets are still pricing in hikes for next year, those were somewhat eased on Monday.

With that in mind, what could be in store for gold over the remaining 24 hours? During Tuesday’s Asia-Pacific trading session, the Reserve Bank of Australia is expected to raise interest rates. Commitment to keeping the momentum going may continue underpinning the global monetary tightening effort, which generally threatens gold.

That said, Asia-Pacific markets may follow the relatively rosy session set by Wall Street. The Dow Jones and S&P 500 rallied 2.66% and 2.59% on Monday, respectively. These were also some of the best performances in months, another sign of the times. As such, an improvement in risk appetite may bode well for gold if the US dollar continues to see near-term selling pressure.

Gold technical analysis

On the daily chart, gold has broken above the 20-day Simple Moving Average (SMA). That may open the door to extending gains in the near term. However, the long-term falling trendline from earlier this year is not far above. This resistance could reinstate the dominant downside focus. As such, traders ought to proceed here with some caution.

XAU/USD daily chart

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