Gold falls after recovering driven by US data

• The price of Gold corrects after a rise after the publication of US data that changed the outlook for interest rates, a key factor for Gold.
• The data revealed cooling inflation and stagnant spending, suggesting interest rates could fall.
• Lower interest rates are positive for the price of Gold and the pair is in an uptrend on the charts.

The price of Gold (XAU/USD) is trading lower at $2,375 on Thursday after making significant gains the previous day. Gold bulls showed their strength following the release of US inflation data that led to a recalibration of interest rate expectations, with implications for both the US Dollar (USD) and the price of Gold .

Gold stabilizes after rising after US data release

The price of Gold is correcting on Thursday amid profit-taking after a rise of more than one percent the previous day. The release of lower-than-expected US Consumer Price Index (CPI) and retail sales data for April led to a change in expectations about the future path of US interest rates ., a key factor in Gold valuations.

The lower-than-expected CPI data reflected a disinflationary trend that brought forward the time when the Federal Reserve (Fed) is expected to make its long-awaited interest rate cut. According to CME's FedWatch tool, there is about a 75% chance that the federal funds rate will be at lower levels after the September meeting. This is much higher than the 65% probability seen before the CPI release, according to FXStreet editor Lallalit Srijandorn.

The expectation of lower interest rates is positive for Gold as it reduces the opportunity cost of holding the unprofitable asset versus cash or bonds. Gold is further boosted by the loss in value of the US Dollar (USD) that accompanied the data, as, like most commodities, Gold is primarily traded in USD.

Still, the outlook for the precious metal remains positive against a backdrop of continued robust demand from central banks, particularly from emerging markets, high levels of geopolitical risk and concerns about a fracturing of global trade along partisan lines. .

In fact, according to data from the World Gold Council (WGC), gold demand “increased 3% to 1,238 tonnes, making it the strongest first quarter since 2016,” Srijandorn writes.

Technical Analysis: The price of Gold falls after a strong rise

Gold price (XAU/USD) has risen to just below the resistance at $2,400 as it extends its short-term uptrend.

XAU/USD 4-hour chart

The RSI is in the overbought zone, warning traders not to increase their long positions as there is a higher possibility of a pullback. If the RSI breaks out of overbought, it will signal that a deeper correction is underway.

That being said, the precious metal remains in an uptrend and, given the old saying “the trend is your friend,” it is likely that the price of Gold will continue to trade with a bullish bias. A break above $2,400 would likely lead to a rally to the next resistance level at $2,417 (the April 19 high), followed by $2,430, the all-time high.

The medium and long-term charts (daily and weekly) are also bullish, adding a context of support for Gold.