XAU/USD retreats despite Fed rate cut expectations

Gold prices have fallen to $2,457 after reaching an all-time high of $2,483 because of profit-taking. Fed officials, led by Governor Christopher Waller, signal potential rate cuts, suggesting a downward trend for the Fed funds rate. The US Dollar Index drops to 103.72, its lowest level since March 2024, while US Treasury yields decline.

The US Consumer Price Index (CPI) data sponsored Gold’s leg-up above $2,400, as the odds for Fed rate cuts increased. Building Permits and Housing Starts for June increased by 3.4% and 3% respectively, while US Industrial Production decelerated but exceeded estimates.

Former President Donald Trump’s comments favouring tax reductions, lower interest rates, and increased tariffs could be inflationary for the economy and weaken the US dollar.

The US Dollar Index sinks 0.49% at 103.72, its lowest level since March 21, 2024. US Treasury bond yields are also falling across the yield curve, with the 10-year Treasury note yielding 4.14%, down almost one and a half basis points (bps).

Gold prices retreated slightly due to the People’s Bank of China decision to halt gold purchases in June, as it did in May. By the end of June, China held 72.80 million troy ounces of the precious metal.

Gold’s uptrend is set to continue, though buyers are taking a respite after hitting all-time highs shy of $2,490. Momentum is still in their favor, as shown by the Relative Strength Index (RSI), which dipped slightly but is still bullish.

If XAU/USD resumes its uptrend, the first resistance will be the all-time high at $2,483, followed by the $2,500 psychological level. On the flip side, if XAU/USD drops below $2,450, the first support would be the $2,400 figure, followed by the July 5 high at $2,392. If cleared, Gold would extend its losses to $2,350.

Gold has played a key role in human history as a store of value and a medium of exchange. It is widely seen as a safe-haven asset, a hedge against inflation, and a hedge against depreciating currencies.