- Gold slips 0.24%, influenced by rising US Treasury yields, firm US Dollar.
- Mixed US economic data includes higher jobless claims and mixed housing data.
- Fed officials highlight ongoing inflation challenges and steady monetary policy stance.
Gold prices fell in the mid-North American session on Thursday, below $2,390, as US Treasury yields recovered and underpinned the Greenback. Wednesday’s inflation report in the United States sponsored the golden metal rally, but Thursday’s data was a mixed bag, which could likely trigger some profit-taking ahead of the weekend.
The XAU/USD trades at $2,381, down by 0.24%. Wall Street continued to trade at or near record highs, denting appetite for safe-haven assets like Gold. US economic data continued to drive Gold prices after the number of Americans filing for unemployment benefits rose above estimates but trailed the previous reading.
Other data showed that construction permits plunged, while Housing Starts increased in April compared to March but missed forecasts.
Recently, the May Philadelphia Fed Manufacturing Index dropped from 15.5 to 4, below forecasts, while Industrial Production in April remained unchanged.
Richmond Fed President Thomas Barkin acknowledged that inflation is decreasing but emphasized that it will “take more time” to reach the Fed’s target. Cleveland Fed President Loretta Mester expressed approval of the latest CPI data, noting that the current monetary policy stance is appropriate as the Fed continues to assess forthcoming economic data.
Daily digest market movers: Gold shines amid dropping US yields as rate cut expectations rise
- Gold prices are undermined by lower US Treasury yields and a battered US Dollar. The US 10-year Treasury note yields 4.373% and is up 3 basis points (bps) from its opening level. DXY climbs 0.19% to 104.47.
- US Bureau of Labor Statistics (BLS) announced that Initial Jobless Claims rose above estimates of 220K and came at 222K for the week ending May 11, but they trailed the prior reading of 232K.
- US Housing Starts rose to 1.36 million in April, marking a 5.7% YoY increase. However, Building Permits, which are an indicator of future construction activity, declined by 3%, falling to a rate of 1.44 million.
- Federal Reserve reveals that April Industrial Production remained unchanged at 0% MoM, below March’s reading and forecasts of 0.1%.
- On Tuesday, Fed Chair Jerome Powell commented that he expects inflation to continue heading lower but wasn’t as confident about the disinflation outlook as he had previously been.
- Wednesday’s inflation and Retail Sales data augmented the odds for rate cut expectations by the Federal Reserve. Data from the Chicago Board of Trade hints that traders expect at least 37 basis points of easing toward December 2024.
Technical analysis: Gold pulls back from weekly highs as buyers take a respite
Gold’s uptrend remains unchanged despite retreating below the $2,380 area, with strong momentum on the side of buyers as depicted by the Relative Strength Index (RSI) indicator. From a market structure standpoint, if XAU/USD drops below the latest higher low seen on May 13 at $2,332, that could open the door for a deeper correction.
In that scenario, the next line of defense for buyers would be the May 8 low of $2,303, followed by the 50-day Simple Moving Average (SMA) at $2,284.
Conversely, if buyers reclaim the $2,400 level, further gains are seen, putting at risk the year-to-date high. A breach of the latter, the immediate supply zone would be the April 19 high at $2,417, followed by the all-time high at $2,431.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.