- Gold is retreating towards $2,300 after hitting an intraday high of $2,326.
- The Fed’s revised forecasts indicate only one interest rate cut in 2024, which will be an unfavorable factor for XAU/USD prices.
- Lower producer prices and higher unemployment claims boost the dollar, with the 10-year Treasury yield falling to 4.242%.
Gold prices fell during the North American session on Thursday, reaching an intraday high of $2,326. The Federal Reserve (Fed) anticipates only one interest rate cut instead of the three proposed since the December 2023 Summary Economic Outlook (SEP), a scatterplot. Meanwhile, mixed US economic data strengthened the dollar to the detriment of the gold metal.
The spot rate for XAU/USD is USD 2,303, down almost 1%. US data from the Bureau of Labor Statistics (BLS) showed lower prices paid by manufacturers, and the number of Americans applying for unemployment benefits exceeded estimates and the previous reading.
While the data suggests the Fed could set the stage for a rate cut, according to the scatter chart, Fed officials estimate there will be just 25 basis points (bps) by the end of 2024.
Still, market participants expect 39 basis points of easing under the December 2024 federal funds rate contract, according to Chicago Board of Trade data.
The yield on the 10-year U.S. Treasury note fell seven basis points from 4.310% to 4.242%, usually a positive tailwind for the underperforming metal, which is feeling the lull in China’s gold purchases.
The news that the People’s Bank of China has suspended its 18-month-long bullion buying frenzy has had a negative impact on the precious metal. In May, PBOC resources remained stable at 72.80 million troy ounces of gold.
On Wednesday, Fed Chair Jerome Powell said the Fed was less confident about inflation than previously “for cuts.” He added: “If employment were to weaken unexpectedly, the Fed stands ready to respond.” When asked about the US CPI report, Powell mentioned that it was just one of them and emphasized the need to monitor the evolution of the deflation process towards the Fed’s target.
Daily summary of market changes: Gold price falls after weaker data from the US
- The US Dollar Index (DXY) rose 0.49% to 105.20, negatively impacting gold prices.
- The US Producer Price Index (PPI) fell from 0.5% to -0.2% in May, below estimates of a 0.1% boost.
- Core PPI remained unchanged at 0% in May, below forecasts of growth by 0.3% and below April’s 0.5%.
- Jobless claims rose by 242,000 for the week ending June 6, above the consensus estimate of 225,000. and the previous week’s reading of 229,000.
- Even though the US CPI report shows that the disinflation process is ongoing, Fed Chairman Jerome Powell commented that the Fed remains “less confident” about progress on inflation.
- Although the latest CPI and PPI reports in the US were weaker than expected, the latest NFIB Small Business Optimism Index survey for May showed that companies are struggling with higher prices and access to low-cost financing.
Technical Analysis: Gold Price Sellers Regain Control as Prices Head towards $2,300
The price of gold remains neutral or on a downward trend as the head and shoulders pattern remains unchanged, suggesting that the price of the non-volatile metal is doomed to further losses. Momentum as measured by the Relative Strength Index (RSI) shows that sellers are in power, indicating that when the XAU/USD price falls below $2,300, lower prices await them.
Gold’s first support would be $2,300. After clearing, the next stop will be the May 3 low of $2,277, followed by the March 21 high of $2,222. Further losses lie below as sellers would expect a target head and shoulders pattern around $2,170-$2,160.
On the other hand, if XAU/USD breaks above the June 7 cycle high of $2,387, it opens the door to testing the $2,400 figure.
