Market Update on Gold Prices
- Gold prices dip over 1.50% in response to a US-China tariff ceasefire and a shift towards riskier assets.
- US data indicates slower retail sales and mixed housing statistics, with inflation expectations remaining elevated.
- Fed officials exercise caution regarding potential policy shifts despite recent progress. Treasury yields rebound, providing support for a stronger US dollar.
Gold prices dropped by more than 1.50% on Friday, likely concluding the week with a decline of over 4%. This downturn came as a result of a more optimistic market environment, prompting investors to offload precious metals in favor of riskier assets. Currently, XAU/USD is trading at $3,187, having touched $3,252 earlier in the day.
The decline in gold coincided with announcements surrounding the US-China trade situation, particularly an agreement to reduce tariffs by 115%. Recent economic data from the US indicated that XAU/USD fluctuated between $3,120 and $3,265 over the past four days, but it seems buyers are running out of steam.
Interestingly, consumer sentiment from the University of Michigan highlighted a growing pessimism among American households as of May. The data suggested rising inflation expectations. Furthermore, previous housing reports showed mixed results, and import prices saw an uptick.
In the wake of these data releases, gold managed to recover some losses, as market participants began to factor in mitigation points expected from the Federal Reserve. Nevertheless, when all data was digested, US Treasury yields along with earlier losses caused the dollar to perform positively.
This week’s economic indicators from the US have pointed to ongoing progress, yet Fed officials remain hesitant to loosen their policies, largely due to uncertainties surrounding trade and tariffs and their potential inflationary effects.
On the growth side, retail sales continued to exhibit a slowdown in April; however, the latest update from the Atlanta Fed’s GDPNOW indicates that the US economy might expand at a rate of 2.4% in the second quarter of 2025.
Looking ahead, next week’s economic docket in the US will be under close scrutiny, featuring remarks from several Fed officials, along with Flash PMI and housing data updates.
Market Insights: Gold Reacts to Weak US Consumer Sentiment
- The University of Michigan’s Consumer Sentiment Index fell to 50.8 in May, a decline from last July’s levels, and below the anticipated 52.2 for April.
- Housing data for April rose by 1.6% to 1.361 million, falling short of expectations. This follows a prior 1.9% increase in March, with building permits also dropping by 4.7%.
- US import prices in April grew by 0.1%, beating the forecast and recovering from a 0.4% decline in March.
- This week, Washington and Beijing announced a 90-day pause, signaling the end of an ongoing trade conflict.
- US Treasury bond yields erased previous declines, with the US 10-year Treasury hovering around 4.437%, while current US yields have stabilized at 2.0907%.
XAU/USD Technical Analysis: Risk of a Double Top
As mentioned previously, if buyers couldn’t maintain daily closings above $3,200, any rebounds in gold might be brief. It seems that level was indeed breached, but sellers stepped in, pushing XAU/USD below that mark, indicating a possible “double top.” Momentum indicators suggest further downside potential, as the relative strength index (RSI) remains in bearish territory.
If XAU/USD stays below $3,200, the next support level appears to be at $3,155, corresponding to the 50-day Simple Moving Average, with further support at $3,100. Alternatively, if gold surpasses $3,200, the next resistance could peak at $3,257, rather than hitting $3,300.
