Market Data 
- Gold price is gaining 1.18% amid mixed US economic data and lower Treasury yields.
- US 10-year Treasury yield drops to lowest level since April, following a softer-than-expected jobs report.
- US Dollar Index increases 0.22% to 104.7 but fails to curb Gold’s advance.
Gold’s price remains range-bound and advanced on Wednesday, making a U-turn to Tuesday’s price action following the release of mixed US economic data that could warrant lower borrowing costs set by the US Federal Reserve (Fed). Therefore, US Treasury yields dropped, and the Greenback rose, yet failed to put a lid on the yellow metal. The XAU/USD trades at $2,353, up 1.18%.
The US 10-year benchmark note coupon added to its weekly losses as it went down three basis points to 4.297%, its lowest level since April, following a softer-than-expected US jobs report.
The Institute for Supply Management (ISM) showed the US economy continues to expand in its service sector, boosting both the Greenback and the golden metal.
The US Dollar Index (DXY), which tracks the Greenback’s performance against a basket of six currencies, rises 0.22% to 104.7.
US yields continued to edge lower due to investors beginning to price in more than a 25-basis-point (bps) rate cut toward the end of 2024. Via data from the Chicago Board of Trade (CBOT), specifically the December 2024 fed funds futures contract, traders project 37 bps of easing.
The golden metal was also boosted by commodity prices stabilizing following Tuesday’s plunge, which witnessed a more than 4% drop during the first two days of the week. Additionally, upbeat Caixin PMI data from China hints that the economy might continue to grow.
Consequently, US Treasury bond yields dropped, and the Greenback extended its losses to three straight days. The US 10-year Treasury bond yields plunged eleven basis points to 4.392%.
Daily digest market movers: Gold price capitalizes on falling US Treasury yields
- US ISM Services PMI in May expanded by 53.8 to its highest level since August 2023, exceeding estimates of 50.8 and April’s 49.4.
- “Survey respondents indicated that overall business is increasing, with growth rates continuing to vary by company and industry,” wrote Anthony Nieves, ISM Services Business Survey Committee Chair.
- ADP Employment Change revealed that private US hiring in May rose by 152K, below estimates of 175K and missing April’s 188K.
- Last week, the US Core Personal Consumption Expenditure Price Index (PCE), the Fed’s preferred inflation gauge, stabilized, boosting hopes for potential rate cuts.
- Traders are currently pricing about a 57.4% chance of a rate cut in September, according to the CME FedWatch Tool.
- The US economic docket during the week will feature Initial Jobless Claims for the previous week on Thursday, followed by May’s Nonfarm Payrolls on Friday.
Technical analysis: Gold price shrugs off strong US Dollar and edges higher above $2,350
Gold’s uptrend remains in place yet consolidates within the $2,320 to $2,360 area, with neither buyers nor sellers able to push prices beyond the boundaries. Momentum suggests that buyers are in charge, as portrayed by the Relative Strength Index (RSI), which could pave the way for a bullish continuation.
In that event, Gold’s first resistance would be $2,360. Once cleared, the next stop would be $2,400, followed by the year-to-date high of $2,450.
Conversely, if XAU/USD drops below the 50-day Simple Moving Average (SMA) of $2,337, the next stop would be the May 8 low of $2,303, followed by the May 3 cycle low of $2,277.
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.
