Gold price rises on soft US CPI, traders price in Fed rate cuts
- XAU/USD briefly hit $3,360 before paring gains and now trades near $3,320.
- US May CPI undershoots forecasts, lifting hopes for Fed easing in September.
- US-China trade talks show progress, but approval is still pending from top leaders.
Gold prices posted modest gains of over 0.22% on Wednesday as the latest inflation report in the United States (US) revealed that prices are cooling. Hence, investors increased their bets that the Federal Reserve (Fed) would resume its easing cycle in September. The XAU/USD trades at $3,327.
May’s Consumer Price Index (CPI) in the US provided an opportunity for Gold buyers. The print dipped compared to April’s data, and Bullion prices spiked toward a daily peak of $3,360 – in the headline – before erasing those gains.
Uncertainty around negotiations between the US and China will most likely keep Gold prices higher. Although US Commerce Secretary Howard Lutnick said that they’ve reached a framework to implement the Geneva Consensus, it is pending approval from US President Donald Trump and his counterpart Xi Jinping.
At the same time, the Chinese Vice Commerce Minister Li Chenggang said that talks “involved in-depth exchanges and communication had been rational and candid.” He added that he will report on the framework to leaders and expects that the progress could increase trust between the two countries.
Traders' focus shifted to the release of the Producer Price Index (PPI) figures and jobs data. The latest ISM Purchasing Managers Index (PMI) surveys showed that input prices for companies had risen. Although May’s CPI data was positive, analysts suggest that households are yet to feel the impact of tariffs.
Daily digest market movers: Gold holds firm as the Greenback, US yields plunge
- The weakness of the US Dollar might keep Gold prices underpinned. The US Dollar Index (DXY), which tracks the value of the Dollar against a basket of peers, falls 0.44% to 98.61, reaching four-day lows.
- US Treasury yields are collapsing; The US 10-year Treasury yield has dropped five basis points (bps) to 4.42%. US real yields followed suit, falling by five basis points to 2.13%, boosting Bullion‘s advance.
- US inflation rose less than expected in May, with headline CPI up 2.4% YoY, below the 2.5% forecast but slightly above April’s 2.3%. The Core CPI remained steady at 2.8% YoY, matching the previous month's figure and indicating persistent yet stable underlying price pressure.
- Geopolitical tensions remain high as US President Trump told Fox News that Iran is becoming much more aggressive in nuclear talks. The Iranian Foreign Minister said, “As we resume talks on Sunday, it is clear that an agreement that can ensure the continued peaceful nature of Iran's nuclear program is within reach — and could be achieved rapidly.”
- Money markets suggest that traders are pricing in 47.5 basis points of easing toward the end of the year, according to Prime Market Terminal data.
Source: Prime Market Terminal
XAU/USD technical outlook: Gold price consolidates below $3,400
Gold price remains upwardly biased, but price action over the last two days indicates that buyers are reluctant to drive the spot price above $3,400. The Relative Strength Index (RSI) shifted flat near its neutral line, further confirmation of a trendless market.
For a bullish continuation, XAU/USD needs to climb above $3,350 to challenge $3,400. Further strength lies in $3,450 and the all-time high (ATH) at $3,500.
Conversely, if Gold slumps beneath $3,300, it opens the door to test key support levels, such as the 50-day Simple Moving Average (SMA) at $3,269. Below that level lies the April 3 high-turned-support at $3,167.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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