Gold prices declined on Monday, influenced by the increase in US Treasury bond yields. This movement came after Federal Reserve officials decided to maintain current interest rates and reduced their projections for rate cuts later in the year from three to one. Consequently, the price of gold (XAU/USD) is trading at $2,317, marking a 0.63% drop from the day’s high of $2,332.
The precious metal is experiencing downward pressure due to the advancing US Treasury bond yields, which have strengthened following the Federal Reserve’s hawkish stance. Despite this, the US Dollar has struggled to gain momentum and remains one of the weaker performers in the foreign exchange market.
Over the weekend, Neel Kashkari of the Minneapolis Fed discussed monetary policy, indicating that it is “a reasonable prediction” that the Federal Reserve will reduce policy by just 25 basis points in 2024. This expectation of sustained high US bond yields makes gold less attractive as the federal funds rate remains elevated.
Earlier, Philadelphia Fed President Patrick Harker stated that, assuming the economy evolves as anticipated, a single rate cut is likely in 2024. He emphasized that the current policy is restrictive and aimed at bringing inflation down to 2%.
Gold traders are now focusing on upcoming economic data releases, including Retail Sales, Industrial Production, Initial Jobless Claims, and the S&P Global Purchasing Managers Index (PMI) figures.
Data from the Chicago Board of Trade (CBOT) indicates that traders expect a total of 35 basis points of easing throughout the year, according to December’s 2024 fed funds rate contract.
Additionally, news from the People’s Bank of China (PBOC) that it has paused its 18-month bullion purchasing spree has negatively impacted gold prices. In May, PBOC’s gold holdings remained steady at 72.80 million troy ounces.
Market Movers: Gold Prices Decline Amid Rising US Yields
The rise in US Treasury yields has limited the upward movement of gold prices. The yield on the US 10-year Treasury note has increased by almost six basis points to 4.281%. Concurrently, the US Dollar Index (DXY) fell by 0.18% to 105.34, further capping the gold price.
Despite the US Consumer Price Index (CPI) report indicating ongoing disinflation, Fed Chair Jerome Powell expressed caution, stating that the progress on inflation remains uncertain.
Technical Analysis: Gold Price Outlook
Gold prices are exhibiting a neutral to downward bias as the Head-and-Shoulders chart pattern persists, suggesting a potential drop below the $2,200 mark. Momentum indicators show that sellers are gaining strength, with the Relative Strength Index (RSI) further entrenched in bearish territory, indicating the possibility of additional losses.
Should XAU/USD fall below $2,300, the first support level would be the May 3 low of $2,277, followed by the March 21 high of $2,222. Further declines could target the Head-and-Shoulders pattern objective between $2,170 and $2,160.
Conversely, if gold manages to extend gains past the June 7 cycle high of $2,387, it could potentially test the $2,400 level.
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