- Gold rebounds from daily lows, driven by a sharp decline in US consumer sentiment and future economic prospects.
- High US Treasury yields were no excuse for Gold's advance.
- American consumers expect inflation to remain above 3% for a year.
- Fed officials are cautious about rate cuts, with mixed signals from different Fed governors.
Gold prices advanced strongly late in the North American session on Friday, rising more than 1% even as US Treasury yields remained high. A survey from the University of Michigan (UM) showed that Americans had become pessimistic about the economy, as consumer sentiment fell to its lowest level in six months.
The XAU/USD pair is trading at $2,369, after bouncing off daily lows of $2,343. Friday's sentiment data and the weakest labor market numbers released since early May paint a bleak picture for the United States (US) economy. Although fear of a pronounced economic slowdown remains low, market participants seeking safety drove the gold metal and the US dollar higher.
Federal Reserve officials continued to cross the press wires. Atlanta Fed President Raphael Bostic remained hawkish, saying the Fed is on track for a single rate cut in 2024. Later, Fed Governor Michelle Bowman said the policy should remain in place. “stable” and does not see rate cuts justified this year. Lorie Logan of the Dallas Fed ruled out the idea of cutting interest rates.
Neel Kashkari, governor of the Minneapolis Fed, has recently stated that he is in “wait and see mode” on future monetary policy.
Inflation figures, retail sales, construction permits and Fed speeches will be on the US agenda next week.
Daily Market Moves Summary: Gold Strengthens as US Data Raises Fed Rate Cut Hopes
- Gold prices fell amid falling US Treasury yields and the strength of the US Dollar. The 10-year US Treasury yield is yielding 4.504% and gained almost five basis points (bps) from its opening level. The US Dollar Index (DXY), which tracks the bilde against six other currencies, rose 0.12% to 105.32.
- The University of Michigan's consumer sentiment index fell significantly in May, from 77.2 in April to 67.4, missing analysts' expectations of 76 points. Joanne Hsu, UM Survey Director, noted that the 10-point drop is statistically significant and marks the lowest level of consumer sentiment recorded in approximately six months.
- In addition, inflation expectations have increased. Inflation expectations rose from 3.2% to 3.5% in May for the one-year outlook. For a 10-year period, expectations increased slightly from 3.0% to 3.1%.
- Softer-than-expected labor market numbers, as shown by last month's U.S. jobs report and jobless claims data, could put pressure on the Fed. Officials acknowledged that risks to reaching The Fed's dual mandate of promoting maximum employment and price stability have become more balanced in the last year.
- Following the data release, the odds of Fed rate cuts increased from around 33 basis points (bps) to 34 bps of rate cuts by the end of 2024.
Technical analysis: The price of Gold resumes its upward trend and exceeds $2,350
Gold maintains its bullish bias despite having retreated 6% from its all-time high of $2,431, reached on April 12. Momentum shows that buyers are gaining strength, which is visible in the Relative Strength Index RSI, which is turning bullish since early May.
XAU/USD buyers surpassed the April 26 high at $2,352. Despite this, Gold has consolidated around $2,360-$2,378, with buyers unable to test the $2,400 figure. Once passed, the next stop would be the April 19 high at $2,417, followed by the all-time high of $2,431.
On the contrary, if Gold falls below $2,300, further losses would occur. The next support would be the 50-day SMA at $2,249.
Frequently asked questions about Gold
Why invest in Gold?
Gold has played a fundamental role in human history, as it has been widely used as a store of value and medium of exchange. Today, apart from its brilliance and use for jewelry, the precious metal is considered a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation, since it does not depend on any specific issuer or government.
Who buys more Gold?
Central banks are the largest holders of Gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase since records exist. Central banks in emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
What correlation does Gold have with other assets?
Gold has an inverse correlation with the US Dollar and US Treasuries, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
What does the price of Gold depend on?
The price of Gold can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
