Gold prices increased on Tuesday following new economic data from the United States, which suggested a slowdown in consumer spending due to a weaker-than-expected Retail Sales report. This data has fueled speculation that the Federal Reserve might start its easing cycle this year. The price of gold (XAU/USD) reached $2,327, marking a 0.51% rise.
The US Department of Commerce reported that May’s Retail Sales showed improvement over April’s figures, which were revised downward but still fell short of expectations. This has renewed investors’ hopes for a rate cut, as the Fed indicated in its last meeting that the current monetary policy is appropriate.
Additionally, Industrial Production data showed improvement in May, following a downward revision for April.
Fed officials have also made statements that have influenced market sentiment. New York Fed President John Williams mentioned that interest rates could decrease gradually if the disinflation process continues toward the Fed’s 2% annual core inflation goal. Although he avoided a direct answer regarding a rate cut in September, he noted, “I think that things are moving in the right direction.”
Conversely, Richmond Fed President Thomas Barkin expressed caution, stating that more data is needed before considering easing. Similarly, Boston Fed President Susan Collins emphasized that one positive inflation reading is not sufficient to warrant a rate cut.
Newly appointed St. Louis Fed President Alberto Musalem indicated that he needs to see more progress in the disinflation process before supporting a rate cut. He added that if inflation stalls, he would favor a rate hike, although this is not his primary expectation.
Despite most policymakers adopting a neutral stance, US Treasury yields reflect growing investor anticipation of rate cuts. The 10-year Treasury note yield dropped by six basis points to 4.219%.
Data from the Chicago Board of Trade (CBOT) shows traders expect 36 basis points of easing during the year through December’s 2024 fed funds rate contract.
Market Movers: Gold Prices Rise as US Yields Fall
The US Dollar Index (DXY) decreased by 0.05% to 105.27, limiting the rise in gold prices. May’s Retail Sales increased by 0.1% month-over-month, recovering from April’s 0.2% decline but missing the 0.2% estimate. Annually, sales declined from 2.7% to 2.3%.
US Industrial Production in May exceeded expectations with a 0.9% month-over-month increase, surpassing the anticipated 0.3%.
Last week’s Consumer Price Index (CPI) report increased the likelihood of a Fed rate cut in September from 57% to 62%, according to the CME FedWatch Tool. Despite the CPI report showing ongoing disinflation, Fed Chair Jerome Powell commented that they remain “less confident” about the progress on inflation.
Technical Analysis: Gold Prices Show Bearish Tendencies
The gold price remains neutral to bearish, as indicated by the persistent Head-and-Shoulders chart pattern. Although there was a recent uptick, momentum currently favors sellers, as suggested by the Relative Strength Index (RSI).
Should XAU/USD fall below $2,300, the next support levels 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 chart pattern objective between $2,170 and $2,160.
On the other hand, if gold extends its gains beyond $2,350, key resistance levels include the June 7 cycle high of $2,387, with potential to challenge the $2,400 mark.
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