Gold Faces Threat Below Major Trendline After US Data Release

With the release of US Purchasing Manager Index (PMI) data, the XAU/USD Index is at a key juncture, threatening to fall below a significant trendline. According to the most recent figures, the US manufacturing and services sectors both experienced greater growth in May than anticipated. At the time of writing, gold is -1.93% down, trading at $ 2,333.26 per ounce.

Although the short-term trend for gold has turned negative, it is presently testing a significant trendline.

Interest Rates:

Recent data suggests that interest rates in the US will need to remain at their current level (or potentially higher) for some time before inflation can be sustainably brought down to the Federal Reserve’s 2.0% target. This expectation of prolonged high interest rates is bearish for Gold. As a non-yielding asset, Gold becomes less attractive to investors when interest rates rise.

FOMC Minutes:

The Federal Reserve (Fed) meeting minutes were recently made public, and they revealed that officials were hesitant to cut interest rates. In fact, because of the ongoing pressures of inflation, they even talked about hiking rates.

USD Impact:

Given that the Fed had identified the services sector’s inflation as a major worry, the stronger-than-expected Services PMI data helped to strengthen the US dollar (USD). Higher interest rates typically draw in foreign investment, which is good for the US dollar.

Technically, the advance since February is reflected in the dark grey major trendline that XAU/USD is currently breaking over. Deeper drops could result if it breaks below this trendline strongly, which would indicate a highly pessimistic outlook.

A closer look at the US PMI data for May is advised, as it may have additional implications for Gold’s performance. Positive data could be detrimental to Gold, and weaker data could be the opposite.