Gold prices showed minimal movement during the North American session, attributed to low trading volume on the Juneteenth holiday. US economic data indicated a slowdown, boosting the expectations of a Federal Reserve rate cut. Despite these factors, XAU/USD remained nearly unchanged, trading at $2,328 at the current time.
US Retail Sales in May improved but were revised downward, suggesting a slowing economy. This, coupled with recent consumer inflation data, increased the likelihood of a rate cut in September. Industrial Production data for May also improved, following a downward revision in April.
The CME FedWatch Tool indicates a 67% chance of a 25 basis points rate cut in September, with futures contracts predicting a total easing of 36 bps by December 2024. Federal Reserve officials have emphasized patience on rate cuts, citing the need for more evidence of evolving inflation to meet the 2% core inflation target.
Technical analysis suggests a bearish bias in Gold prices, with a potential drop below $2,300 in the near term. A Head-and-Shoulders chart pattern indicates a downward trend, with key support levels at $2,300, $2,277, and $2,222. On the upside, resistance levels at $2,350, $2,387, and $2,400 could be challenging.
Gold plays a significant role in history as a store of value and medium of exchange, serving as a safe-haven asset and hedge against inflation and depreciating currencies. Central banks are major holders of Gold, adding significant reserves in 2022 to support their currencies during turbulent times. Gold has an inverse correlation with the US Dollar and US Treasuries, making it attractive as a diversification tool in times of market uncertainty.
Various factors can impact Gold prices, including geopolitical instability, economic recession fears, and interest rate movements. As a yield-less asset, Gold tends to rise with lower interest rates and weaken with higher rates. However, its performance is closely tied to the behavior of the US Dollar, as Gold is priced in USD. A strong Dollar typically suppresses Gold prices, while a weaker Dollar can drive them higher.
