Gold prices fell sharply during the North American trading session on Wednesday, dropping below $2,400. This happened because traders were selling off profits before the release of the Federal Reserve’s latest meeting minutes. At the same time, data from the US housing market showed weakness, and Federal Reserve officials stayed silent after a busy week.
Gold Prices Move with US Economic Data
The XAU/USD pair dropped to $2,392, down over 1% from its earlier high of $2,426. US Treasury bond yields increased after a hotter-than-expected UK inflation report, pushing US yields higher. US stocks were mixed, as investors waited for NVIDIA’s earnings report, and the US dollar slightly strengthened, further pushing gold prices down.
Central Banks and Gold Buying
Despite this fall, there was still some good news for gold. The Wall Street Journal reported that central banks have been buying more gold. According to the World Gold Council, emerging market central banks have purchased about 2,200 tons of gold since the third quarter of 2022. This buying could be partly due to Western sanctions on Russia after the Ukraine invasion.
US Housing Market Update
In the US, the number of homes sold in April decreased by 1.9%, from 4.22 million to 4.14 million. However, Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), gave a positive outlook, saying, “It’s good news for homeowners that home prices reached a record high for April.”
Fed Minutes Push Gold Prices Lower
The Federal Reserve’s meeting minutes revealed that some officials were ready to tighten policies if economic risks increased. They also expressed concerns about inflation taking longer than expected to reach the target of 2%. This cautious, or “hawkish,” tone increased US Treasury yields and strengthened the US dollar, which negatively impacted gold prices.
Impact of Rising Yields and Stronger Dollar on Gold
Gold prices dropped as US Treasury yields rose, and the US dollar gained strength. The 10-year US Treasury bond yield rose by 2 basis points to 4.434%, while the US Dollar Index (DXY) increased by 0.19% to 104.82, which created challenges for XAU/USD.
The Fed’s minutes reflected uncertainty about how soon inflation could be controlled. This caution influenced market sentiment, and many investors now expect a small interest rate cut by the end of the year.
Gold Price Outlook – Further Declines Ahead?
Gold prices have been trending upwards overall, but the recent drop suggests that further declines may be possible. The Relative Strength Index (RSI) shows momentum is turning negative, although it remains in a bullish zone. This means that buyers are losing interest, while sellers are gaining control.
The next support levels for XAU/USD are the May 13 low of $2,332 and the May 8 low of $2,303. If these levels are broken, the 50-day Simple Moving Average (SMA) at $2,284 could be the next key level to watch. However, if gold manages to climb back above $2,400, it could test the year’s high of $2,450 again.
Conclusion:
Gold prices are facing a tough market due to rising US Treasury yields, a stronger dollar, and the Federal Reserve’s cautious stance. Although the long-term trend for gold remains positive, there is potential for short-term declines. To stay updated on the latest market trends, visit Daily Gold Signal. For more detailed updates, check out this daily gold update.
