Gold prices remained stable midweek as investors weighed weaker-than-expected US Consumer Price Index (CPI) data against signs of progress in the long-running US-China trade negotiations.
Despite some softening in safe-haven demand, XAU/USD held above the psychologically important $3,300 level, reflecting a market caught between dovish economic indicators and improving global trade sentiment. The Servelius brokers break down the key points of this issue in the article below.
Subdued US CPI Data Reinforces Disinflationary Trend
The release of the May CPI report marked a significant moment for traders. Headline inflation rose by 2.4% year-over-year, underperforming the 2.5% consensus estimate, while core CPI, which excludes food and energy, remained flat at 2.8%, failing to meet expectations of a 2.9% rise.
On a monthly basis, inflation gains were modest. Both headline and core CPI rose just 0.1%, significantly below their respective 0.2% and 0.3% projections. These numbers underscored an ongoing trend of slower price growth, providing relief for investors concerned about aggressive Federal Reserve tightening.
This subdued inflation profile bolstered demand for non-yielding assets like gold, which tends to outperform when real interest rates are falling or expectations for rate hikes recede.
Federal Reserve Rate Path: Market Bets on September Easing
In response to the soft CPI figures, the CME FedWatch Tool showed a shift in rate expectations. Market participants now widely anticipate that the Federal Open Market Committee (FOMC) will keep interest rates unchanged at the upcoming June and July meetings, while assigning a 56.3% probability to a 25 basis point rate cut in September.
This shift is meaningful. Lower rates reduce the opportunity cost of holding gold, making the yellow metal more attractive, especially in an environment where growth concerns and geopolitical risks persist.
Investors now turn their attention to the upcoming US Producer Price Index (PPI) report for May, scheduled for release on Thursday. A weaker PPI could further cement the case for policy easing, while a surprise to the upside might revive rate hike fears, potentially capping gold’s upward momentum.
US-China Trade Optimism Lifts Broader Risk Sentiment
Adding a layer of complexity to the gold market was a fresh wave of optimism around US-China trade relations. Sources close to the negotiations have indicated that a comprehensive trade deal between the world’s two largest economies is close to completion. Key details include tariff adjustments and the easing of restrictions on China’s rare earth exports, which are vital for sectors like defense, technology, and green energy.
The anticipated removal of export restrictions could significantly benefit the US supply chain, especially for products requiring critical minerals such as semiconductors, electric vehicles (EVs), and military components. These developments fueled broader risk appetite, pushing equities higher and reducing the immediate demand for safe-haven assets such as gold.
Nonetheless, gold prices remained resilient, as markets remain cautious amid unresolved structural issues in the global economy and the ongoing wait for central bank clarity.
Technical Landscape: XAU/USD stabilizes at $3,340
From a technical analysis standpoint, XAU/USD shows a neutral-to-bullish bias. Gold briefly surged above $3,350 following the release of the inflation data but retreated modestly as risk sentiment improved across global markets. As of now, the metal trades around $3,340, maintaining a tight range.
Immediate resistance lies near the $3,350 mark. A decisive break above this level could open the path toward $3,375, with further bullish momentum likely to challenge the $3,400 psychological barrier. Should gold surpass that hurdle, a move toward the April all-time high of $3,500 becomes increasingly feasible.
Fundamental vs. Sentiment: A Crossroad for Gold
The broader picture for gold continues to reflect a delicate balance between weakening macro fundamentals and improving geopolitical optimism. Slower inflation supports the case for monetary easing, while positive developments in international trade reduce the urgency for hedging through traditional safe-haven assets.
Gold remains attractive to investors seeking diversification amid global uncertainties. However, the momentum is currently constrained by a mix of macro softness and risk-on trading behavior, which tempers the urgency for aggressive gold accumulation.
Conclusion
Gold remains steady, trading above $3,300, as markets digest soft US inflation data and an improved global risk outlook driven by potential trade breakthroughs. While interest rate expectations have shifted in gold’s favor, improving sentiment around US-China negotiations has capped further upside, for now.
