Gold climbs as USD falls, Treasury yields dip

The XAU/USD Index has rebounded from a two-week low following inflation data from Canada and Australia. The Dollar Index (DXY) dropped 0.12% to 105.91, off a monthly high of 106.13.

The Federal Reserve’s preferred gauge for inflation, the May PCE, is expected to decrease from 2.7% to 2.6% YoY, with Core PCE also expected to decline from 2.8% to 2.6% YoY. US GDP for Q1 2024 came in at 1.4% QoQ, slightly higher than the previous two readings but still trailing last year’s fourth-quarter expansion of 3.4%.

Fed officials delivered mixed stances during the week, with Fed Governor Michelle Bowman being hawkish and San Francisco Fed President Mary Daly being dovish. Fed Governor Lisa Cook was neutral on Tuesday, saying that inflation was most likely to fall “sharply” next year and that it would be necessary to ease policy to keep the Fed’s dual mandate more balanced.

The odds for a 25-basis-point Fed rate cut in September are at 59.5%, up from 56.3% last Tuesday. The December 2024 fed funds rate futures contract implies the Fed will ease policy by just 35 basis points (bps) toward the end of the year.

Technical factors:

Gold price edges higher but remains shy of testing the Head-and-Shoulders neckline. If the latter is decisively broken, it could negate the pattern and pave the way to test the June 21 high of $2,368. The Relative Strength Index (RSI) stands below the 50-midline, suggesting that the next support for XAU/USD would be $2,300.

Once cleared, the non-yielding metal would fall to $2,277, the May 3 low, followed by the March 21 high of $2,222. Further losses lie underneath, with sellers eyeing the Head-and-Shoulders chart pattern objective from $2,170 to $2,160.