Gold prices declined by 1% to $2,336 despite lower US Treasury yields, signaling a retreat from near $2,350. The movement was attributed to a softer US Dollar and a risk-on sentiment in the market. Traders are anticipating key US economic events, including the release of inflation data, Retail Sales figures, and a speech by Fed Chair Jerome Powell on May 14.
In a recent Q&A session, Fed Vice-Chairman Philip Jefferson emphasized the importance of driving inflation back toward the Fed’s 2% target. The labor market data, such as April’s Nonfarm Payrolls and Initial Unemployment Claims, could also impact the Fed’s decisions. Officials have acknowledged that the risks to achieving maximum employment and price stability have become more balanced over the past year.
Investors are closely monitoring the upcoming releases of producer and consumer inflation data for April, which could influence the Fed’s rate path. The New York Federal Reserve’s Survey of Consumer Expectations indicated an increase in inflation expectations for the year. Interest rate cut expectations for the end of the year stand at 34 basis points, according to data from the Chicago Board of Trade (CBOT).
Technically, the Gold price experienced a sharp decline below $2,350, with a potential downside target of $2,300. The key support levels to watch for are the May 9 low of $2,306 and the $2,300 figure. On the other hand, a breach of the resistance level at $2,359 could lead to a test of higher levels such as $2,352, $2,400, $2,417, and $2,431.
Gold has a significant historical role as a store of value and medium of exchange, making it a popular safe-haven asset during turbulent times. Central banks are the largest holders of Gold, with many increasing their reserves to enhance economic and currency strength. The precious metal has an inverse correlation with the US Dollar and US Treasuries, providing a hedge against currency depreciation and market volatility.
Various factors, such as geopolitical instability, economic recessions, and changes in interest rates, can influence the price of Gold. As a yield-less asset, Gold tends to rise with lower interest rates and depreciating currencies. The performance of the US Dollar also plays a crucial role in determining Gold prices, as the asset is priced in dollars (XAU/USD). A strong Dollar typically keeps the Gold price in check, while a weakening Dollar tends to boost Gold prices.
