Gold prices surged late in the North American session on Friday, climbing by over 1% even as US Treasury bond yields remained elevated. A University of Michigan (UoM) survey revealed a significant decline in consumer sentiment, plunging to its lowest level in six months, painting a bleak picture for the US economy.
The XAU/USD pair traded at $2,369 after rebounding from daily lows of $2,343. The pessimistic sentiment data, coupled with weaker labor market figures since the beginning of May, fueled concerns about the US economy. Despite low fears of a pronounced economic slowdown, investors sought safety in both the precious metal and the US Dollar.
Federal Reserve officials made various statements during the session. Atlanta Fed President Raphael Bostic maintained a hawkish stance, suggesting that the Fed is on course for just one rate cut in 2024. Fed Governor Michelle Bowman emphasized the need for policy to remain steady and dismissed the notion of rate cuts this year. Dallas Fed’s Lorie Logan also downplayed the possibility of interest rate reductions, while Minneapolis Fed’s Neel Kashkari adopted a “wait and see” approach towards future monetary policy decisions.
Looking ahead, next week’s US economic calendar will feature key releases including inflation figures, retail sales data, building permits, and speeches from Fed officials.
Gold Strengthens Amid Rising Rate Cut Expectations
Gold prices climbed despite lower US Treasury yields and a stronger US Dollar. The yield on the US 10-year Treasury note reached 4.504%, marking a nearly five basis points (bps) increase from its opening level. Meanwhile, the US Dollar Index (DXY), tracking the Greenback’s performance against six other major currencies, rose by 0.12% to 105.32.
The University of Michigan Consumer Sentiment Index witnessed a significant decline in May, dropping from 77.2 in April to 67.4, falling short of analysts’ expectations of 76. Joanne Hsu, Director of the UoM Survey, highlighted the statistically significant 10-point drop, marking the lowest consumer sentiment level in approximately six months.
Additionally, inflation expectations escalated, with the one-year outlook rising from 3.2% to 3.5% in May, and the ten-year outlook inching up from 3.0% to 3.1%.
Softer-than-expected labor market figures, evident in last month’s US employment report and unemployment claims data, may prompt pressure on the Federal Reserve. Officials acknowledged the balanced risks to achieving the Fed’s dual mandate of maximum employment and price stability over the past year.
Following the data release, the probability of Fed rate cuts towards the end of 2024 increased from around 33 basis points (bps) to 34 bps.
Gold Price Resumes Uptrend, Surpassing $2,350
Gold maintains a bullish bias despite retreating approximately 6% from its all-time high of $2,431 recorded on April 12. Momentum indicators, including the Relative Strength Index (RSI), indicate growing buyer momentum since the start of May.
Buyers of XAU/USD successfully surpassed the April 26 high at $2,352. However, the precious metal consolidated around $2,360-$2,378, with buyers yet to test the $2,400 level. A breach of this level would target the April 19 high at $2,417, followed by the all-time high of $2,431.
Conversely, a slide below $2,300 could trigger further losses, with the 50-day Simple Moving Average (SMA) at $2,249 serving as the next support level.
