Market Data 
- Gold bounces to $2,347 from daily lows of $2,322, up 0.41%.
- Slower US GDP growth and rising unemployment claims weaken the Greenback.
- Traders eye April’s PCE inflation data, which could dictate XAU/USD’s direction.
Gold prices trimmed some of Wednesday’s losses and rose 0.41% on Thursday after the US Gross Domestic Product (GDP) showed the economy is slowing, reigniting hopes that the US Federal Reserve (Fed) may cut rates later in the year.
The XAU/USD trades at $2,347, bouncing off daily lows of $2,322. The yield of the US 10-year note collapsed almost seven basis points (bps) to 4.548%, while the Greenback followed suit. The US Dollar Index (DXY) lost 0.43%, at 104.67.
The US economy grew at a slower rate than in the fourth quarter of last year, indicating that higher borrowing costs set by the Fed are taking their toll on the economy. Meanwhile, the US Department of Labor revealed an increase in the number of people applying for unemployment benefits.
Recently, New York Fed President John Williams grabbed the headlines. He said that monetary policy is well-positioned, that inflation is too high, and that he doesn’t feel urgency to slash interest rates. He added that inflation would reach the Fed’s 2% goal in early 2026.
Even though he was hawkish, Gold prices barely heeded his words, standing at current spot prices. The US housing market is also weakening, according to the Pending Home Sales data revealed by the National Association of Realtors.
Ahead in the week, traders are anticipating the release of April’s Personal Consumption Expenditures (PCE) Price Index, which is the Fed’s preferred measure of inflation. The core PCE figure is expected to be 2.8% YoY, while the headline PCE is projected to increase by 0.3% MoM.
Daily digest market movers: Gold price rises as US Treasury yields retreat from multi-week high
- Gold prices advance after bouncing off 50-day Simple Moving Average (SMA) at $2,324.
- US economic docket includes second estimate of Gross Domestic Product (GDP) for Q1 2024, which showed a decline from 3.4% to 1.3% quarter-over-quarter and aligned with analyst expectations.
- Initial Jobless Claims for the week ending May 25 increased to 219K, slightly above the consensus estimate of 218K and higher than the previous week’s reading of 216K.
- Pending Home Sales for April tumbled from 3.6% to -7.7% MoM and, on an annual basis, plunged -7.4% from a 0.1% expansion.
- Fed funds rate futures estimate just 27 basis points of interest rate cuts in 2024, according to data provided by the Chicago Board of Trade (CBOT).
Technical analysis: Gold price climbs, yet remains below $2,350
Gold’s rally is set to continue, yet buyers are struggling to crack the psychological $2,350 mark, which could pave the way for further gains. Short-term momentum favors sellers as the Relative Strength Index (RSI) remains bearish after punching below the 50 midline on Wednesday.
Further gains could be anticipated if XAU/USD buyers reclaim the psychological mark of $2,350. The next target would be the $2,400 level, followed by the year-to-date high of $2,450 and, subsequently, the $2,500 mark.
Conversely, if XAU/USD falls below the 50-day Simple Moving Average (SMA) at $2,321, that could pave the way to challenge 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.
