Gold price skyrockets on soft US data, falling US yields and geopolitical jitters
- Gold rebounds from $3,120 weekly low as US yields fall and DXY weakens, boosting safe-haven appeal.
- April US PPI and Retail Sales miss expectations, prompting markets to fully price in two Fed cuts for 2025.
- Ukraine-Russia tensions resurface as Putin refuses peace talks, adding geopolitical premium to Bullion.
Gold price rallied sharply on Thursday after hitting a weekly low of $3,120, posting solid gains of over 1.40%, boosted by broad US Dollar weakness due to a nifty Producer Price Index (PPI) report in the United States (US). This, along with falling US bond yields, keeps XAU/USD trading at $3,228 at the time of writing.
The yellow metal began to rise in anticipation of US PPI data, which in April came surprisingly below estimates and March’s data. At the same time, Retail Sales for the same period slowed as households front-loaded motor vehicle purchases, and job data revealed by the US Department of Labor showed that the number of Americans filing for unemployment claims was in line with estimates.
The data triggered a reaction in the fixed-income markets, prompting markets to fully price in two interest rate cuts by the Federal Reserve (Fed) in 2025, with the first one expected in September.
Another reason behind Gold’s advance might be Russian President Vladimir Putin's reluctance to meet with Ukrainian President Volodymyr Zelenskyy in Turkey to discuss a resolution of their conflict.
Given the fundamental backdrop, Gold is set to extend its gains. However, the US-China trade war de-escalation was a headwind for the yellow metal, which witnessed a loss of over $120 as XAU/USD’s prices drifted to $3,200.
Ahead this week, the US economic docket will feature housing data, and traders will eye the University of Michigan Consumer Sentiment preliminary survey for May.
Daily digest market movers: Weak US data and collapsing US yields push Gold up
- The US PPI in April fell unexpectedly by -0.5% MoM, missing an estimate of a 0.2% increase. The core PPI dropped by -0.4%, below forecasts of a 0.3% expansion.
- April Retail Sales in the US increased by 0.1% MoM after March’s figures were upwardly revised to 1.7%. Economists had expected the numbers to remain unchanged compared to the previous month.
- US Initial Jobless Claims for the week ending May 10 rose by 229,000, as expected, unchanged from the previous week.
- US Treasury bond yields are plummeting, with the US 10-year Treasury note yield edging nine basis points lower to 4.49%. Meanwhile, US real yields followed suit, down nine and a half bps to 2.077%.
XAU/USD technical outlook: Double top at risk of being negated
From a technical standpoint, Gold’s bounce could be short-lived if buyers fail to achieve a daily close above $3,200. In that case, they need to surpass the May 14 peak of $3,257 to remain hopeful of testing $3,300 and trimming weekly losses. Nevertheless, momentum favors further downside, as depicted by the Relative Strength Index (RSI). Traders should be cautious that the ongoing leg up could be a correction of an ongoing downtrend.
On the other hand, if XAU/USD closes daily below $3,200, further downside is expected, with the 50-day Simple Moving Average (SMA) at $3,155 serving as the next support level, followed by $3,100.
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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