- Gold bounces back from its earlier decline, driven by a significant decrease in US consumer sentiment and the outlook for the future economy.
- The rise in US Treasury yields did not justify the increase in Gold’s value.
- American consumers anticipate that inflation will stay above 3% within a year.
- Federal Reserve officials are exercising prudence regarding potential interest rate reductions, as various Fed governors have given conflicting indications.
Gold prices surged significantly towards the end of the North American session on Friday, increasing by over 1% despite the persistence of high US Treasury bond yields. A recent survey conducted by the University of Michigan (UoM) revealed that Americans have grown increasingly pessimistic about the state of the economy, with Consumer Sentiment hitting its lowest point in the past six months.
The XAU/USD is currently trading at $2,369, having rebounded from its daily lows of $2,343. The sentiment data released on Friday, along with the disappointing labor market figures that have emerged since the start of May, present a rather bleak picture for the US economy. Despite minimal concerns about a significant economic downturn, investors looking for security pushed up the value of Gold and the US Dollar.
Federal Reserve officials continued to make headlines. Atlanta’s Federal Reserve President Raphael Bostic maintained a firm stance, stating that the Federal Reserve is currently projected to implement only a single reduction in interest rates by 2024.
Following the discussion, Fed Governor Michelle Bowman emphasized the importance of maintaining a consistent policy approach. He expressed her belief that there is no need for interest rate reductions in the current year. Lorie Logan of the Dallas Fed dismissed the notion of reducing interest rates.
Neel Kashkari, the President of the Minneapolis Fed, has expressed a cautious approach toward future monetary policy, stating that he is currently adopting a “wait and see” stance.
In the upcoming week, the United States calendar will showcase the unveiling of inflation data, retail sales numbers, building permit statistics, and speeches from the Federal Reserve.
Gold Gets Stronger as US Data Raises Hopes That the Fed Will Cut Rates
- The decline in gold prices was driven by the decrease in US Treasury yields and the robustness of the US Dollar. The yield on the US 10-year Treasury note is currently 4.504% and has increased by nearly five basis points (bps) since it opened. The US Dollar Index (DXY), which monitors the performance of the Greenback against six other currencies, increased by 0.12% to reach 105.32.
- In May, the University of Michigan Consumer Sentiment Index noted a notable decrease, dropping from 77.2 in April to 67.4. This result fell short of the analysts’ predicted value of 76. According to Joanne Hsu, the Director of the UoM Survey, the decrease of 10 points is statistically significant. It represents the lowest level of consumer sentiment observed in about half a year.
- Furthermore, there has been a significant increase in inflation expectations. In May, inflation expectations for the one-year outlook increased, rising from 3.2% to 3.5%. During the ten years, expectations increased slightly, increasing from 3.0% to 3.1%.
- The labor market figures, as indicated by the recent US employment report and unemployment claims data, could potentially impact the Federal Reserve’s decisions. Authorities acknowledged that the dangers to accomplishing the Federal Reserve’s objective of promoting optimal employment and stable prices have become more evenly distributed in the past year.
- Following the release of the data, the likelihood of a Fed rate cut rose slightly from approximately 33 basis points (bps) to 34 bps by the end of 2024.
The Price of Gold Continues Its Upward Trend and Climbs Above $2,350
Despite a slight 6% pullback from its record-breaking peak of $2,431 on April 12, Gold continues to maintain a bullish outlook. The momentum indicates that buyers are gaining strength, as evidenced by the bullish shift in the Relative Strength Index (RSI) since the beginning of May.
Buyers of XAU/USD successfully surpassed the previous high of $2,352 recorded on April 26. Nevertheless, Gold has stabilized within the range of $2,360-$2,378, as buyers have yet to reach the $2,400 mark. After being cleared, the next destination would be the high point on April 19 at $2,417, followed by the record-breaking peak of $2,431.
On the other hand, additional declines are anticipated if Gold drops below the $2,300 level. The next level of support can be found at the 50-day Simple Moving Average (SMA) of $2,249.