Gold prices took a hit on Friday, dropping more than 1.70% as economic data from the United States led investors to rethink the possibility of fewer interest rate cuts by the Federal Reserve. The XAU/USD pair traded at $2,317, below its opening price after reaching a daily high of $2,368.
The US economy presented mixed signals, with the S&P Global Purchasing Managers Index (PMI) data coming in strong, boosting the US Dollar. The US Dollar Index (DXY) rose 0.14% to 105.80 following the PMI release. However, the housing sector in the US continued to show weakness as Existing Home Sales for May fell short of expectations.
Despite some positive economic indicators such as Industrial Production, S&P Flash PMIs, and Retail Sales showing improvement, other sectors like housing and the job market painted a less optimistic picture, keeping alive the speculation of a Fed rate cut in September.
Technical indicators pointed to a correction in Gold prices after a three-month rally that began in March, pushing XAU/USD to its all-time high of $2,450. The CME FedWatch Tool indicated a 59.5% probability of a 25-basis-point Fed rate cut in September, up from 57.5% the previous day.
The US Treasury bond yields remained firm, with the 10-year Treasury note yield holding steady at 4.261%. S&P Global Manufacturing and Services Flash PMIs for June exceeded estimates, with the Manufacturing PMI rising to 51.7 and the Services PMI increasing to 55.1.
Fed officials emphasized the need for patience regarding interest rate cuts, mentioning that their decisions would depend on incoming data. Despite positive CPI reports, policymakers remained cautious about inflation progress.
From a technical analysis perspective, Gold prices dropped below the Head-and-Shoulders neckline, targeting $2,300 as the next support level. If this level is breached, further declines to $2,277 and $2,222 could be expected. On the other hand, a break above $2,350 could lead to a test of key resistance levels at $2,387 and $2,400.
Gold has historically been considered a safe-haven asset, acting as a hedge against inflation and depreciating currencies. Central banks are significant holders of Gold, with emerging economies like China, India, and Turkey increasing their reserves. The price of Gold is influenced by various factors, including geopolitical instability, interest rates, and the strength of the US Dollar.
Investors should conduct thorough research before making any investment decisions, as trading in open markets carries risks. The views expressed in this article are those of the author and do not constitute investment advice.