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XAU/USD declines 0.84% as a strengthened US Dollar weighs on gold prices; trade uncertainties persist. US economic data shows mixed signals, with lower inflation yet robust growth, impacting gold demand.
Geopolitical friction escalates as trade disputes with China resurface.
Gold prices retreated on Friday, falling below the $3,300 mark as the US Dollar regained strength, even as US Treasury bond yields softened after a robust inflation update. This development has fueled optimism among traders that the US Federal Reserve (Fed) might consider policy relaxation in 2025. The XAU/USD pair is currently trading at $3,289, reflecting a 0.83% decrease.
Market sentiment turned cautious after US President Donald Trump voiced frustration, alleging that China has breached the trade agreement established between the two nations in Switzerland. His statement, “China, perhaps not surprisingly to some, HAS TOTALLY VIOLATED ITS AGREEMENT WITH US. So much for being Mr. NICE GUY!” sparked renewed concerns. As a result, US stock markets declined, while the US Dollar Index (DXY) rebounded from its daily lows.
On the trade front, a US Federal Appeals Court recently upheld the majority of tariffs imposed by Trump on April 2, dubbed “Liberation Day,” reversing an earlier decision by a US Court of International Trade that had deemed most of these tariffs unlawful.
Economic indicators revealed a slight decline in the US Core Personal Consumption Expenditures (PCE) Price Index for April compared to the previous month. Additionally, the University of Michigan’s final Consumer Sentiment reading for May surpassed expectations, while inflation outlooks moderated. These mixed signals have influenced market dynamics, with gold struggling to capitalize on the softer inflation environment.
Key Market Influences on Gold:
US Dollar Strength: The DXY, which measures the US Dollar against a basket of six currencies, rose by 0.11% to 99.44, putting downward pressure on gold.
Treasury Yields Decline: The 10-year US Treasury note yield dipped by two basis points to 4.40%, with real yields also decreasing by a similar margin to 2.086%, just below the previous day’s close.
Inflation Trends: The April US core PCE eased to 2.5% year-over-year from 2.6%, and headline inflation dropped to 2.1% from 2.3%, signaling ongoing disinflation influenced by the Fed’s tight monetary stance.
Market Positioning: Despite the favorable inflation data, gold prices remained subdued as short positions on the US Dollar in futures markets were reduced, per Commitments of Traders (COT) reports.
Consumer Sentiment: The University of Michigan’s Consumer Sentiment index rose from 50.8 to 52.2, exceeding forecasts, while inflation expectations decreased—12-month outlook fell from 7.3% to 6.6%, and five-year projections dropped from 4.6% to 4.2%.
Economic Growth: The Atlanta Fed’s GDPNow estimate for Q2 2025 jumped from 2.2% to 3.8%, reflecting stronger economic momentum.
Fed Outlook: Federal Reserve officials indicated that current monetary policy is appropriately balanced, suggesting that any shift in focus regarding the Fed’s dual mandate will take time. San Francisco Fed President Mary Daly noted a stable labor market and acknowledged that the 2% inflation target may not be met in 2025. However, she hinted at the possibility of two rate cuts if employment remains strong and disinflation progresses, aligning with market expectations.
Market Expectations: Money markets, based on Prime Market Terminal data, now anticipate approximately 52 basis points of rate cuts by year-end following the latest US economic releases.
