Gold prices (XAU/USD) fell to the $2,340s on Thursday following the release of robust US economic data. The latest S&P Global Purchasing Manager Index (PMI) survey showed stronger-than-expected growth in both the Services and Manufacturing sectors for May, indicating that interest rates may need to remain high for a prolonged period to tame inflation.
At the time of writing, XAU/USD is trading at $2,332, down 1.90% from its previous high of $2,383. The sharp decline in gold prices reflects concerns that persistently high interest rates will increase the opportunity cost of holding non-yielding assets like gold, reducing its appeal to investors.
The PMI data comes on the heels of the Federal Reserve’s (Fed) meeting Minutes released on Wednesday, which revealed that policymakers are reluctant to cut interest rates due to ongoing inflationary pressures. The Minutes also suggested that some Fed officials are considering further rate hikes if inflation does not ease sufficiently.
Gold has been on a downward trajectory since reaching an all-time high on Monday. The current price action is testing a major trendline on the gold price chart, and a decisive breach could signal further declines for gold bulls.
The US economic data underscored the strength of the labor market, with the US Bureau of Labor Statistics reporting lower-than-expected initial jobless claims for the week ending May 17. This bolstered the US Dollar, with the US Dollar Index (DXY) gaining 0.18% to trade above 105.00. The stronger dollar, which has an inverse relationship with gold, further pressured the yellow metal.
In addition to the PMI data, the Fed Minutes indicated that interest rates are expected to remain at the current target range of 5.25% – 5.50% until at least September. The hawkish tone of the Fed, coupled with the strong labor market data, suggests that rate cuts are unlikely in the near term.
Despite the recent decline, gold prices have found some support from central bank buying in emerging markets. According to The Wall Street Journal, central banks have purchased approximately 2,200 tons of gold since the third quarter of 2022, driven by Western sanctions on Russia following its invasion of Ukraine.
Looking ahead, the next major release for gold will be the US Purchasing Manager Index (PMI) data for May, scheduled for 13:45 GMT on Thursday. Strong PMI data could further weigh on gold prices, while weaker-than-expected data might provide some relief for the precious metal.
