Gold rises sharply despite Fed’s hawkishness

Despite pressure from high US Treasury yields, gold gains more than 0.30%. Governor Michelle Bowman and other Fed officials’ pessimistic comments restrain Gold’s ascent. The release of US core PCE inflation data is of interest to traders of XAU/USD.

Late in the North American session, the price of gold saw a slight increase, rising by about 0.15%, despite the high yields on US Treasury bonds making holding the non-yielding metal less desirable. As a result, the Greenback erased its earlier losses, ending Gold’s upward trend. At $2,357, the XAU/USD trades 0.28% higher than its initial price.

Wall Street is experiencing a loss-making transaction as the yield on 10-year Treasury notes spikes up to its highest level since early May. This sparked an increase in real yields, which typically have an inverse relationship with gold prices, curbing the yellow metal’s growth.

On Tuesday, representatives of the Federal Reserve (Fed) sent a hawkish message over the wire. The Conference Board (CB) Consumer Confidence Index showed improvement in May, although concerns about the recession have returned.

The Federal Reserve’s (Fed) favoured inflation indicator, the Personal Consumption Expenditures (PCE) Price Index for April, is slated to be released later this week, and traders are anticipating its release. While headline PCE is predicted to rise by 0.3% MoM, the core figure is predicted to increase by 2.8% YoY.

Despite trading off three-day highs at $2,364, gold prices remain positive due to rising US Treasury yields. The yield on the US 10-year Treasury note is 4.538%, up seven basis points, supporting the US currency. Traded at 104.61, up 0.03%, is the US Dollar Index (DXY), which measures the performance of the dollar versus a basket of peers.

According to Fed Governor Michelle Bowman, she would have favoured a more gradual slowdown in the balance sheet run-off or waiting to lower the rate of quantitative tightening.

Minneapolis Fed President Neel Kashkari said he expects no more than two rate cuts in 2024 and added that he doesn’t think anyone has ruled out more rate hikes.

After three months of losses, the US Conference Board Consumer Confidence increased in May, climbing to 102.0 from 97.0 and beyond predictions of 95.9. Although things are getting better, The Conference Board’s Chief Economist Dana Peterson noted that there may be “a possible resurgence in recession concerns.”

In May, Americans’ assessments of the chance of a US recession during the ensuing year increased once more. Chicago Board of Trade (CBOT) data shows that only 25 basis points are projected to be decreased in interest rates by Fed funds rate futures in 2024.
Technical Prognosis:

When buyers lose steam, the price of gold remains stable. Although gold is still in an uptrend, the rise is starting to lose steam and show indications of fatigue. Buyers are in control, but their momentum is waning as the Relative Strength Index (RSI) flattens.

Key support levels would be exposed if XAU/USD is unable to hold onto gains over $2,350, which would put downward pressure on the yellow metal. The psychological $2,350 amount would be the initial source of support. After clearing, the low of $2,303 on May 8 and the cycle low of $2,277 on May 3 would be the next targets.

However, more gains are ahead if XAU/USD maintains its above $2,350 level. Up next would be the $2,400 mark, followed by the year-to-date high of $2,450 and then the $2,500 mark.