Gold remains under pressure on hawkish Fed
- Gold price is trading on a negative note on the stronger USD on Friday.
- The higher-for-longer US rate narrative weighs on the yellow metal.
- Investors will monitor the Fed’s Waller speech, US Durable Goods Order, and Michigan Consumer Sentiment Index report on Friday.
Gold price (XAU/USD) edges lower to a two-week low on Friday amid renewed US Dollar (USD) demand. The diminishing bets of a rate cut in September from the US Federal Reserve (Fed) exert some selling pressure on the precious metal. Nonetheless, the safe-haven flows amid the rising geopolitical tensions in the Middle East might lift the gold price.
Gold investors will take more cues from Fedspeak. The Fed’s Waller is set to speak on Friday. The hawkish remarks from the Fed policymakers might further weigh on the yellow metal. It’s worth noting that a higher rate generally hurts gold prices as it increases the opportunity cost of investing in the yellow metal. Apart from this, the US Durable Goods Order and Michigan Consumer Sentiment Index will be released.
Daily Digest Market Movers: Gold price retreats from record highs amid the Fed’s hawkish stance
- The US Initial Jobless Claims fell by 8K to 215K for the week ending May 18. This figure came in lower than the expectation of 220K and the previous week’s reading of 223K.
- The flash US S&P Global Manufacturing PMI rose to 50.9 in May from 50.0 in April. The Services PMI climbed to 54.8 in May from the previous reading of 51.3. Both figures came in better than the estimation.
- The US S&P Global Composite PMI jumped to 54.4 in May from 51.3 in April, beating the market expectation of 51.1, the highest level since April 2022.
- Atlanta Fed President Raphael Bostic said that he still sees upward inflation pressure, adding the Fed may need to be more patient to avoid heating the economy.
- China’s private sector imported 543 tonnes of gold in Q1 2024, and the People’s Bank of China (PBoC) added another 189 tonnes to its reserves during the same period, according to the latest analysis by Gainesville Coins’ Jan Nieuwenhuijs.
- Gold imports to India, the world’s second-largest gold consumer, might decline by about a fifth in 2024 as high prices encourage retail customers to exchange old jewelry for new products, per Reuters.
Technical Analysis: Gold price’s bullish outlook remains intact, with a Bearish Divergence in focus
Gold price trades on a weaker note on the day. The precious metal keeps the bullish vibe unchanged on the daily chart as it holds above the key 100-period Exponential Moving Average (EMA). However, the yellow metal has formed a bearish divergence as the price made higher highs on May 20, but the RSI indicator has formed lower highs, suggesting the momentum is slowing, and a correction or consolidation in price cannot be ruled out.
The upper boundary of Bollinger Band at $2,428 acts as an immediate resistance level for XAU/USD. A decisive break above this level could resume its climb to an all-time high of $2,450 en route to the $2,500 psychological barrier.
On the flip side, the first downside target will emerge at a low of May 13 at $2,285. Extended losses could take gold lower to the lower limit of the Bollinger Band at $2,267. Further south, the next contention level is seen at the 100-period EMA of $2,217.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.60% | 0.11% | 0.91% | 1.55% | 0.85% | 0.73% | 0.66% | |
| EUR | -0.61% | -0.48% | 0.33% | 0.98% | 0.26% | 0.15% | 0.07% | |
| GBP | -0.11% | 0.48% | 0.80% | 1.43% | 0.74% | 0.62% | 0.54% | |
| CAD | -0.92% | -0.33% | -0.80% | 0.63% | -0.07% | -0.18% | -0.26% | |
| AUD | -1.58% | -0.98% | -1.47% | -0.66% | -0.72% | -0.84% | -0.92% | |
| JPY | -0.85% | -0.25% | -0.75% | 0.08% | 0.70% | -0.14% | -0.19% | |
| NZD | -0.73% | -0.14% | -0.61% | 0.18% | 0.82% | 0.10% | -0.08% | |
| CHF | -0.69% | -0.07% | -0.56% | 0.26% | 0.90% | 0.19% | 0.08% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.