Gold prices climbed on falling US yields and soft US Dollar – Crypto News – Crypto News
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XAU/USD downside is slowing as price corrects from fresh lows XAU/USD downside is slowing as price corrects from fresh lows

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Gold prices climbed on falling US yields and soft US Dollar – Crypto News

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11 months ago

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  • Gold bounces to $2,347 from daily lows of $2,322, up 0.41%.
  • Slower US GDP growth and rising unemployment claims weaken the Greenback.
  • Traders eye April’s PCE inflation data, which could dictate XAU/USD’s direction.

Gold prices trimmed some of Wednesday’s losses and rose 0.41% on Thursday after the US Gross Domestic Product (GDP) showed the economy is slowing, reigniting hopes that the US Federal Reserve (Fed) may cut rates later in the year.

The XAU/USD trades at $2,347, bouncing off daily lows of $2,322. The yield of the US 10-year note collapsed almost seven basis points (bps) to 4.548%, while the Greenback followed suit. The US Dollar Index (DXY) lost 0.43%, at 104.67.

The US economy grew at a slower rate than in the fourth quarter of last year, indicating that higher borrowing costs set by the Fed are taking their toll on the economy. Meanwhile, the US Department of Labor revealed an increase in the number of people applying for unemployment benefits.

Recently, New York Fed President John Williams grabbed the headlines. He said that monetary policy is well-positioned, that inflation is too high, and that he doesn’t feel urgency to slash interest rates. He added that inflation would reach the Fed’s 2% goal in early 2026.

Even though he was hawkish, Gold prices barely heeded his words, standing at current spot prices. The US housing market is also weakening, according to the Pending Home Sales data revealed by the National Association of Realtors.

Ahead in the week, traders are anticipating the release of April’s Personal Consumption Expenditures (PCE) Price Index, which is the Fed’s preferred measure of inflation. The core PCE figure is expected to be 2.8% YoY, while the headline PCE is projected to increase by 0.3% MoM.

Daily digest market movers: Gold price rises as US Treasury yields retreat from multi-week high

  • Gold prices advance after bouncing off 50-day Simple Moving Average (SMA) at $2,324.
  • US economic docket includes second estimate of Gross Domestic Product (GDP) for Q1 2024, which showed a decline from 3.4% to 1.3% quarter-over-quarter and aligned with analyst expectations.
  • Initial Jobless Claims for the week ending May 25 increased to 219K, slightly above the consensus estimate of 218K and higher than the previous week’s reading of 216K.
  • Pending Home Sales for April tumbled from 3.6% to -7.7% MoM and, on an annual basis, plunged -7.4% from a 0.1% expansion.
  • Fed funds rate futures estimate just 27 basis points of interest rate cuts in 2024, according to data provided by the Chicago Board of Trade (CBOT).

Technical analysis: Gold price climbs, yet remains below $2,350

Gold’s rally is set to continue, yet buyers are struggling to crack the psychological $2,350 mark, which could pave the way for further gains. Short-term momentum favors sellers as the Relative Strength Index (RSI) remains bearish after punching below the 50 midline on Wednesday.

Further gains could be anticipated if XAU/USD buyers reclaim the psychological mark of $2,350. The next target would be the $2,400 level, followed by the year-to-date high of $2,450 and, subsequently, the $2,500 mark.

Conversely, if XAU/USD falls below the 50-day Simple Moving Average (SMA) at $2,321, that could pave the way to challenge the May 8 low of $2,303, followed by the May 3 cycle low of $2,277.

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

 

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