Gold price slips below $3,300 amid firm US Dollar after Trump budget vote
- Bullion retreats from two-week high as US House passes debt-heavy budget.
- A strong US Dollar and firmer US S&P PMIs dent safe-haven appeal.
- Geopolitical risks with Iran still support longer-term bullish bias for Gold.
Gold price dropped some 0.48% on Thursday and failed to hold onto the $3,300 figure after reaching a two-week high of $3,345 earlier. A strong US Dollar pressures the golden metal as US Treasury yields retreated from daily highs as the US House of Representatives approved Trump’s budget, which now will be sent for approval to the Senate. XAU/USD trades at $3,289, down 0.83%.
The market mood has improved slightly but remains fragile as it was sponsored by Moody’s downgrade to US government debt. The fiscal package so far approved by the US lower house is projected to add $4 trillion to the debt ceiling.
The US Dollar Index (DXY), which tracks the buck’s value against a basket of six currencies, has paired some of its previous weekly losses and is up a modest 0.18% at 99.86, a headwind for the Dollar-denominated precious metal.
Nevertheless, the outlook for Bullion prices remains optimistic due to geopolitical conflicts. Newswires revealed that Israel is preparing to attack Iran’s nuclear facilities if talks between the latter and the US fall, according to Walla citing sources.
On the data front, S&P Global Purchasing Managers Indices (PMIs) in the US improved, an indication that the economy remains solid. Earlier, the US Department of Labor revealed that the number of Americans filing for unemployment benefits edged lower compared to the prior reading and beneath forecasts.
Bullion traders are eyeing the release of US housing data and Fed speakers on Friday.
Gold daily market movers: Tumbles despite falling US yields on upbeat US data
- US Treasury bond yields halted their advance with the US 10-year Treasury note yield falling three basis points (bps) to 4.55%. Meanwhile, US real yields are also down four bps at 2.207%.
- Gold prices will likely remain underpinned by a sour sentiment toward US assets, namely the Greenback, equities and bonds. This was spurred by controversial US trade policies, along with Moody’s downgrading the US government rating from AAA negative to AA1 stable and an approval of a US budget that will increase the deficit.
- The US S&P Global Manufacturing PMI Flash in May improved from 50.2 to 52.3, exceeding estimates of 50.1. The Services Flash PMI for the same period rose by 52.3, above forecasts and the previous reading of 50.8.
- US Initial Jobless Claims for the week ending May 17 rose by 227K, down from the prior’s week 229K and below forecasts of 230K, indicating the labor market remains solid.
- Fed Governor Christopher Waller said that markets are monitoring fiscal policy. He added that if tariffs are close to 10%, the economy would be in good shape for H2, and the Fed could be in position to cut later in the year.
- Data from the Chicago Board of Trade suggests that traders are pricing in 50.5 basis points of easing toward the end of the year.
XAU/USD technical outlook: Retreats below $3,300 as bulls take a breather
Gold price retraces from weekly highs below $3,300 as traders booked profits and demand for safe haven assets has diminished. Nevertheless, the overall trend remains bullish, as confirmed by the Relative Strength Index (RSI), which remains above its 50-neutral line despite leaning on the downside.
Hence, XAU/USD first resistance would be $3,300 followed by $3,345, the current weekly peak. Once breached, $3,400 is up next, and on further strength $3,438, the May 7 swing high, would be up next.
For a bearish reversal, Gold bears must achieve a daily close below $3,300. Once cleared, immediate support emerges at a May 20 daily low of $3,204, ahead of the 50-day Simple Moving Average (SMA) at $3,191.
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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