The gold price (XAU/USD) retreated after touching an all-time high. During the first half of the European trading session, the price hovered just above the psychologically significant $2,200 level. Despite this pullback, gold prices extended their winning streak to the second consecutive day. Currently, with high market risk appetite and positive trends in stock markets, investors are taking partial profits on gold, a traditional safe-haven asset. Additionally, a slight uptick in U.S. Treasury yields and a mildly overbought condition in the short-term charts further weigh on gold prices.
Fed Policy Expectations Limit Downside for Gold
However, the downside for gold prices appears to be limited. The Federal Reserve is expected to deliver three 25-basis-point rate cuts this year. This expectation caps the significant upside potential for U.S. Treasury yields and exerts continuous pressure on the U.S. dollar. Since gold bears no interest, a weaker dollar typically enhances the appeal of gold. As such, any further price decline may be seen as a buying opportunity, restricting the extent of downward movement. Traders are closely monitoring U.S. macro data, including initial jobless claims, existing home sales figures, and preliminary manufacturing and services Purchasing Managers’ Index (PMI) readings, to seek short-term trading opportunities.
Market Dynamics and Fed Policy Influence Gold Movements
On Wednesday, the Federal Reserve maintained its projection of three rate cuts this year. This news pressured the U.S. dollar for the second consecutive day, propelling gold prices to new record highs. Fed officials now forecast U.S. economic growth of 2.1% this year, up from the previous estimate of 1.4%. The unemployment rate is expected to hold steady at 4% by year-end, lower than the 4.1% predicted in December. Meanwhile, the Personal Consumption Expenditures price index excluding food and energy is projected to rise 2.6% by year-end, higher than the 2.4% in the previous quarterly economic projections. At the post-meeting press conference, Fed Chair Jerome Powell stated that inflation is gradually declining, but the process is bumpy, and recent elevated inflation data keeps officials cautious.
According to the CME Group’s FedWatch Tool, traders currently assign around a 75% probability of a rate cut at the Fed’s June policy meeting, up from 59% on Tuesday. This expectation has led to a mild decline in U.S. Treasury yields. The U.S. dollar hit a one-week low during Asian trading on Thursday, providing some support to gold prices. Nevertheless, against the backdrop of buoyant stock markets, the overbought condition on the daily charts has triggered profit-taking at high levels, exerting some downward pressure on gold as a safe-haven asset.
Technical Analysis Indicates Potential Consolidation but Uptrend Intact
Technically, the robust rally in gold prices overnight confirmed the breakout of a bullish flag chart pattern, further strengthening gold’s upward prospects. The Relative Strength Index (RSI) has climbed back above 70, suggesting that a short-term consolidation or moderate pullback may be needed before traders position for further gains. Still, the overall market structure supports the continuation of the recent strong uptrend. Gold prices have shown a clear upward momentum over the past month or so.
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