In Monday’s early American session, the price of gold (XAU/USD) experienced a notable decline, failing to reclaim the critical resistance level of $2,400. This downward movement was driven by diminished safe-haven demand amidst easing tensions in the Middle East.
The lack of further escalation in tensions between Iran and Israel provided a semblance of relief to the prevailing market sentiment, prompting a reduction in safe-haven asset appeal. Moreover, market sentiment increasingly discounted the possibility of the Federal Reserve (Fed) implementing interest rate cuts during its June and July meetings, further dampening demand for gold.
The rise in 10-year US Treasury yields to 4.66% added to the downward pressure on gold prices. Yields on interest-bearing assets such as US bonds surged, reflecting market expectations that the Fed may lag behind other developed nations’ central banks in pivoting towards rate cuts. Higher bond yields make non-yielding assets like gold less attractive to investors.
This week, investors are closely monitoring the release of the United States core Personal Consumption Expenditure Price Index (PCE) data for March, which is expected to influence bond yields and gold prices. As the Fed’s preferred inflation gauge, the PCE data could shift expectations regarding the timing of potential interest rate adjustments by the US central bank. According to the CME FedWatch tool, markets are currently anticipating the Fed to initiate rate cuts at its September meeting.
Meanwhile, the US Dollar Index (DXY), which measures the US dollar’s strength against six major currencies, remained consolidated within a narrow range around 106.00. Given that gold is denominated in US dollars, a resilient US dollar tends to exert downward pressure on gold prices.
Looking ahead, investors will turn their attention to the preliminary Q1 Gross Domestic Product (GDP) data set to be published on Thursday. With an estimated expansion of 2.5%, strong GDP growth signifies robust consumer spending and increased production, potentially leading to heightened price pressures. A robust GDP figure would provide the Fed with justification to maintain interest rates at their current high levels, consequently bolstering demand for the US dollar.
