Gold (XAU/USD) continues to dominate market headlines as it rallies for a second consecutive day, propelled by a risk-off sentiment, weaker-than-expected US economic data, and escalating geopolitical tensions in the Middle East.
The yellow metal is currently trading at $3,386, flirting with the psychologically significant $3,400 threshold. Fimatron offers a comprehensive analysis of the subject in this in-depth piece.
Fed Rate Cut Expectations Lift Bullion
One of the key catalysts behind gold’s latest upward surge is growing speculation of monetary easing by the Federal Reserve (Fed). Investors are increasingly pricing in the possibility of interest rate cuts, as incoming US data suggests both softening inflation and a weakening labor market.
The latest US Jobless Claims report revealed over 240,000 initial filings for a second consecutive week, signaling that the employment sector may be losing steam. Concurrently, May’s Producer Price Index (PPI) came in slightly above expectations at 2.6% YoY, but the Core PPI, which excludes volatile components such as food and energy, eased to 3.0% YoY, down from 3.1% in April.
Month-over-month, headline PPI rose just 0.1%, below consensus expectations of 0.2%, while Core PPI also slowed to 0.1% from 0.3%.
Such muted inflation readings have fueled rate cut bets, with money markets now pricing in 51 basis points of easing before the year’s end, according to Prime Market Terminal data. This dovish outlook has weighed heavily on the US Dollar, pushing the US Dollar Index (DXY) to multi-year lows, falling 0.60% to 97.99, after briefly touching 97.60, its lowest since mid-2022.
Treasury Yields Fall, Further Boosting Gold
Adding to the bullish momentum for gold, US Treasury yields have declined across the curve. The benchmark 10-year Treasury yield has dropped five basis points (bps) to 4.367%, while real yields have also softened, with the 10-year TIPS yield now at 2.097%.
This decline in real yields, combined with a weaker Greenback, strengthens the appeal of non-yielding assets like gold. Historically, gold prices maintain a negative correlation with both Treasury yields and the US dollar, making these simultaneous declines highly supportive of bullish price action in precious metals.
The combination of geopolitical risk and uncertain economic data has led to a broader risk-averse mood, increasing demand for safe-haven assets like gold.
Gold Technical Analysis: XAU/USD Eyes $3,400 Breakout
Technically, the XAU/USD pair is on strong footing, maintaining a bullish structure characterized by higher highs and higher lows. Price action has remained constructive, suggesting a near-term test of the $3,400 level is likely.
The Relative Strength Index (RSI) on the daily chart is well into bullish territory, having surpassed its recent peak. This momentum indicator confirms that buyer interest remains robust, and the market could witness further gains if resistance at $3,400 is decisively cleared.
The next upside targets include the $3,450 level, a key psychological and technical zone, followed by the all-time high of $3,500. A move beyond this would open the door for price discovery into uncharted territory.
On the downside, if gold prices correct lower, initial support lies near $3,300, followed by the 50-day Simple Moving Average (SMA) at $3,275. A deeper retracement could target the April 3 high-turned-support at $3,167.
Macro Factors to Watch
Looking ahead, traders will closely monitor upcoming macro data releases, including the University of Michigan (UoM) Consumer Sentiment index for June. This report could offer additional clues on consumer confidence amid inflationary and labor market pressures.
However, all eyes will be on the upcoming Federal Reserve policy meeting on June 17-18, where market participants will gauge the central bank’s stance on interest rates, quantitative tightening, and broader monetary policy adjustments.
Conclusion
Gold’s recent rally is underpinned by a confluence of bearish US macroeconomic indicators, falling yields, a weakened US Dollar, and escalating geopolitical tensions. The technical setup remains bullish, with momentum indicators favoring continued upside toward key resistance levels.
As Fed rate cut odds rise, and investor demand for safety intensifies, gold appears well-positioned to extend its gains in the near term. With $3,400 now in sight, the precious metal could soon break new ground, especially if the Fed confirms a dovish pivot at its next policy meeting.
