• Spot gold has extended on earlier losses and is now trading in the upper $1850s, down more than 2.0%.
• As focus turns to upcoming US data and Wednesday’s Fed meeting, profit-taking is seemingly weighing on XAU/USD.
• Some are also citing downside in global energy and metal markets as reducing the demand for inflation protection.

Ahead of the release of April US ISM Manufacturing PMI data that will probably show a continued robust pace of expansion in US industry last month, spot gold (XAU/USD) prices continue to trade on the back foot. Indeed, a fall in prices that had begun during Asia Pacific trade accelerated in the run-up to the US open, with the precious metal recently breaking below key support in the $1875 and extending losses into the upper $1850s.

At current levels around $1857, XAU/USD now trades with on the day losses of over 2.0%. No specific piece of news or fundamental catalyst can be pinned down as behind the latest drop. Instead, analysts and market commentators have on Monday been talking about how nerves ahead of what is likely to be a very hawkish Fed meeting on Wednesday, as well as a barrage of tier one US data releases, is encouraging profit-taking in gold markets.

The Fed is expected to lift interest rates by 50 bps, announce quantitative tightening plans and signal more 50 bps at upcoming meetings, with the bank aiming to get interest rates back to around 2.5% by the year’s end. Higher interest rates increase the “opportunity cost” of holding non-yielding assets like gold and typically weigh on its demand.

Elsewhere, market commentators also cited sharp downside in global energy and metal prices as weighing on demand for gold via a reduced need for inflation protection. Crude oil and copper markets, to take to key examples, have cratered on Monday amid concerns about growth in China following ugly April PMI data over the weekend. XAU/USD bears will now likely target a test of resistance turned support in the $1850 area ahead of a potential test of the 200-Day Moving Average in the $1830s.