Gold Tumbles as Stronger Dollar, Rising Yields Cast Doubt on 2023 Rate Cuts

Gold prices fell sharply on Thursday, as U.S. dollar gains and climbing Treasury yields sparked concerns over the Federal Reserve's anticipated path of interest rate cuts this year.

The precious metal's decline came ahead of a critical inflation report due on Friday, with investors bracing for potential surprises that could force the Fed to recalibrate its monetary policy outlook.

At the center of attention is the Personal Consumption Expenditures (PCE) price index for April, set to be released by the Bureau of Economic Analysis (BEA). The core PCE is the Fed's preferred inflation gauge, capturing changes in consumer spending across a wide range of goods and services.

Treasury yields surged on Thursday, reflecting muted demand at this week's $183 billion bond auctions, as investors grew wary of persistent inflationary pressures amid improving economic growth prospects.

Minneapolis Fed President Neel Kashkari's comments, which did not rule out another rate hike, had a strong impact on market sentiment. Yields climb, with the 10-year note yield reaching a one-month high of 5.471% and the 2-year note yielding 4.958%.

According to the CME's FedWatch tool, markets are pricing in a near-certainty that the Fed will maintain its current benchmark interest rate of 5.25%-5.5% at the June meeting. However, the probability shifts substantially in favor of rate cuts later in the year, with a 12.3% chance of a cut in July and a 47% chance in September.

As of 6:50 PM ET, the gold futures contract for August 2024 is currently fixed at $2,359, down $15.20 or 0.64%, and an additional decline of $4.70 (0.20 %) in Australia. The U.S. dollar index gained 0.51% to 105.164, a major factor in gold’s price decline today.

All eyes are now on Friday's PCE report, which will likely shape the Fed's future policy decisions. Market participants are also eagerly awaiting the central bank's updated economic projections and "dot plot" forecasts for interest rates, due after the June 12 FOMC meeting. The current "dot plot" envisions three rate cuts this year, a scenario that could be revised based on incoming data.

Kitco Media

Gary Wagner

Time to Buy Gold and Silver

Tim Moseley

Gold futures shine bright with a strong gain, forming a "3 river morning star"

Gold futures shine bright with a strong gain, forming a "3 river morning star" teaser image

Gold futures rebounded strongly after last week's price pullback. As of 4:55 PM ET, gold futures for the June 2024 contract surged $27.10, settling at $2,361.80.

With the June contract nearing its first notice day, the August 2024 gold futures contract will soon become the most actively traded. Currently, the August 2024 contract is up $27.40, trading at $2,384.30. Multiple factors have been driving gold's ascent to record highs. While some analysts attribute the precious metal's rally to dollar weakness and declining U.S. Treasury yields, our analysis suggests that geopolitical and macroeconomic influences have played a more significant role.

Ongoing military conflicts in the Middle East and the Russia-Ukraine war continue to fuel geopolitical uncertainty, bolstering gold's safe-haven appeal.

Additionally, central banks worldwide have been steadily increasing their gold holdings over the past two years, with China's central bank among the most aggressive buyers.

China's consumer demand has also been a major catalyst for gold's recent surge. According to UBS, "A significant driver of the surge in gold prices has been the robust increase in China's gold demand, particularly evident in the first quarter of 2024.

Chinese consumers have demonstrated an unprecedented appetite for gold jewelry, with purchases reaching record levels. This surge in demand from China has significantly contributed to the upward trajectory of gold prices and is expected to continue supporting prices in the near term."

Gold investors and traders have remained active buyers on price dips, supporting the precious metal's pricing at these new highs.

On the daily chart, a simple Japanese candlestick pattern called a "Three River Morning Star" has emerged. This pattern, formed after a price decline, can be a strong indication of a key reversal from bearish to bullish.

The pattern consists of a large red candlestick within a defined downtrend, followed by a small-bodied candle (either red or green) that opens and closes below the first red candle. The final candle is a large green candle that opens above the middle candle and closes above the center of the body of the first candle.

With gold's recent strength and the formation of this bullish reversal pattern, the precious metal's upward momentum could continue to shine in the coming sessions.
 

Kitco Media

Gary Wagner

Time to Buy Gold and Silver

Tim Moseley

Gold and silver both poised to resume uptrend after last week’s correction – Saxo’s Larsson

Precious metals saw a sharp bearish correction last week, but prices are rebounding this week with silver leading the pack, according to Kim Cramer Larsson, Technical Analyst at Saxo Bank.

“Gold (XAUUSD) seems to be bouncing from the cloud (shaded area—the Ichimoku Cloud) between the 0.618 and the 0.786 retracement, and the minor support at around 2,326,” Larsson wrote. “A dip down to the 0.786 retracement at 2,314 could still occur before rebounding.

Larsson said that if the gold price breaks above $2,385 per ounce, the prior uptrend is likely back on track with potential to target $2,500. “The 55-day moving average will add to the bullish support,” he said, whereas “A close below 2,277 confirms a downtrend.”

He added that the RSI is indicating a divergence, which suggests that the uptrend could be in exhaustion mode. “However, a close back above the 60 threshold and above the upper falling trendline would be a strong indication of another bullish push in gold,” he said.

Turning to silver, Larsson noted that spot silver (XAGUSD) has bounced from the 0.382 Fibonacci retracement at $30 per ounce, and he believes the gray metal is likely to resume its uptrend.

“Daily RSI is still showing positive sentiment with no divergence, indicating silver could push to levels above 32.52,” he wrote.

Looking at the weekly chart, Larsson said that “If it takes out 32.52, there is no strong resistance until around 34.40–35.40.”

“A break below 30 could continue the correction down to the 0.618 retracement at 28.50,” he concluded.

Gold prices are continuing to hold their earlier gains, with spot gold last trading at $2,351.37 per ounce for a gain of 0.74% on the session.

Silver, meanwhile, continues to lead the metals complex on Monday, with spot silver last trading at $31.522 per ounce, up nearly 4 full percentage points on the daily chart.

Kitco Media

Ernest Hoffman

Time to Buy Gold and Silver

Tim Moseley

A higher for longer monetary policy is spooking gold; prices see the biggest drop in eight months

A higher for longer monetary policy is spooking gold; prices see the biggest drop in eight months teaser image

While central bank purchases and robust Asian demand have created a long-term uptrend in gold, uncertainty surrounding the Federal Reserve's monetary policy continues to generate significant short-term volatility.

At the start of the week, gold prices rallied to a record high above $2,450 an ounce as markets started to solidify expectations that the Federal Reserve was on track to cut rates two times this year.

However, the new breakout rally proved short-lived as gold prepares to end the week more than $100 lower. June gold futures last traded at $2,334.90 an ounce, down nearly 5% from its record highs; prices are down 3.4% from last Friday, its worst selloff in eight months.

The Federal Reserve's minutes from the April/May Federal Open Market Committee meeting show a hawkish sentiment, with the central bank reluctant to cut interest rates as inflation pressures remain elevated.

"Participants noted disappointing readings on inflation over the first quarter and indicators pointing to strong economic momentum and assessed that it would take longer than previously anticipated for them to gain greater confidence that inflation was moving sustainably toward 2 percent," the minutes said.

The minutes also noted that some committee members are willing to raise interest rates if inflation continues to creep higher.

"This revelation pushed back rate cut expectations, with November replacing September as the likely timing for the first cut," said Ricardo Evangelista, Senior Analyst at ActivTrades. "This shift drove an increase in Treasury yields and a stronger dollar, punishing the price of the non-yielding precious metal."

Lukman Otunuga, Manager Of Market Analysis at FXTM, said that gold's selloff ahead of the U.S. Memorial Day long weekend could create more downside pressure for the yellow metal in the near term.

"With traders now only pricing one Fed rate cut in 2024, the scales of power could be shifting in favor of bears," he said.

Otunuga added that in the current environment, the gold market will be sensitive to next week's inflation data. The core Personal Consumption Expenditures Index (PCE), the Federal Reserve's preferred inflation gauge, will be released on Friday.

"Signs of cooling price pressures have the potential to rekindle Fed cut hopes, boosting gold prices. If the PCE report prints above market forecasts, this may deal another blow to Fed cut expectations – dimming gold prices even further," he said. "Talking technicals, the downside momentum could take prices toward the $2300 support level and lower. For bulls to jump back into the game, a move back above $2385 may be required."

Despite the broader bullish sentiment in the marketplace, some analysts note that near-term momentum is turning for gold .

"It certainly wouldn't be much of a stretch to see [gold] retest $2,300. This level, and the area just below, acted as support earlier this month, and it feels as if it wouldn't take much selling to push it back down there. But as ever, strong rallies can appear out of nowhere, particularly after significant pullbacks," said David Morrison, Senior Market Analyst at Trade Nation, in a note Friday.

Alex Kuptsikevich, Senior Market Analyst at FxPro, said he also sees signs of shifting near-term momentum in the marketplace; however, he added that the precious metal could be bought on dips.

"There is a divergence between the RSI and the price dynamics on daily timeframes, where a higher local price high corresponds to a lower peak in the Relative Strength Index. This is seen as a depletion of buying strength and often precedes a major decline or reversal," he said. "However, the latest decline may be a short-term correction, effectively letting off steam and clearing the way to the upside. Still, gold is above its 50 and 200-day moving averages."

Looking at gold's technical picture, analysts have said that investors and traders need to watch initial support between $2,300 and $2,285 an ounce.

In a recent interview with Kitco News, Nitesh Shah, Director of Research at WisdomTree, said that he expects official sector demand to support higher prices.

Shah explained that while central banks aren't focused on gold's price as they look to diversify their reserves, they will still be opportunistic and buy at a discount when they can.

"I suspect, every price dip we see, central banks will be buying. They know that if they want a cheaper price, they had better load up now because the price is only going higher," he said.

With central bank demand providing solid support in the marketplace, Shah said it is only a matter of time before Western Investors jump in.

While Friday's inflation numbers will be the main focus in the shorted trading week, economists will pay close attention to updated GDP numbers and consumer confidence data.

Economic data to watch next week:

Tuesday: US Conference Board Consumer Confidence,

Thursday: Preliminary U.S. Q1 GDP, weekly jobless claims, pending home sales

Friday: US PCE and personal income and spending

Kitco Media

Neils Christensen

Time to Buy Gold and Silver

Tim Moseley

Wall Street sees gold price declines or consolidation next week, Main Street is more optimistic about gains

Kitco NEWS has a diverse team of journalists reporting on the economy, stock markets, commodities, cryptocurrencies, mining and metals with accuracy and objectivity. Our goal is to help people make informed market decisions through in-depth reporting, daily market roundups, interviews with prominent industry figures, comprehensive coverage (often exclusive) of important industry events and analyses of market-affecting developments.

Wall Street sees gold price declines or consolidation next week, Main Street is more optimistic about gains teaser image

This past week was thin on economic data, so gold prices began the week coasting along at their newly elevated levels coming out of last week's fresh all-time highs.

After opening the week on Sunday evening trading at $2,421.20 per ounce, spot gold stayed comfortably above the 2400 level until shortly after 10:00 am EDT Wednesday morning, when it broke decisively through support and began its steady descent. The release of the minutes from the April/May FOMC meeting later Wednesday afternoon did the yellow medal no favors, as markets digested the news that some voting members were open to hiking rates further if warranted.

Spot gold hit its weekly low of $2,325.46 shortly after 8:30 p.m. EDT Thursday, and as of Friday afternoon, it was trading less than $10 off that level for a loss of over 3.30% on the weekly chart.

The latest Kitco News Weekly Gold Survey has over three-quarters of industry experts believing gold prices have plateaued or will decline in the near term, while half of retail traders still believe the precious metal could climb higher in the coming days.

“Down,” said Darin Newsom, Senior Market Analyst at Barchart.com. “June Gold has more room to the downside to finish its 3-wave downtrend next week. This means the contract would be expected to take out Friday’s low (so far) of $2,326.30. Daily stochastics (a short-term momentum study) are above the oversold level of 20%, also indicating the contract has time and space to move lower.”

“I am neutral on Gold for the coming week,” said Colin Cieszynski, Chief Market Strategist at SIA Wealth Management. “Between the US holiday and the lack of major events heading into month end, it think it may be a quiet week.”

James Stanley, senior market strategist at Forex.com, believes this week’s price decline was more bump-in-the-road than roadblock.

“This week was a strong pullback but there remains quite a bit of support structure around the $2,300 area in both spot and futures,” Stanley said. “If bears can chew through that next week, there could be scope for a larger reversal, but given how the move priced in after a fresh high on Sunday night, this week seems more like a pullback in a bullish trend, at this point.”

“Up,” said Adrian Day, President of Adrian Day Asset Management. “We would expect a recovery rally from the big sell-off the last couple of days, and another attempt to break $2,400 convincingly. Whether gold will break above that level is not certain, but for next week, we expect a good rally.”

“Gold’s resilience to any pullbacks the last three months has been astonishing,” Day added.

Daniel Pavilonis, Senior Commodities Broker at RJO Futures, was looking at the factors weighing on the precious metal Friday. “I think a couple of things are pushing gold down,” he said.

First off, Pavilonis said, a pullback was to be expected after the precious metal made such a strong move higher last week.

“And I think this is just a near-term correction in rates to the upside,” he added, “ten-year yields moving back up to four and a half now, 4.46%. The high today was 4.499. We, we made a move from 4.3 up to around 4.5%, and I think that's really putting some pressure on the metals.”

That said, Pavilonis believes the pullback will be short-lived. “We may go a little bit higher than 4.5%, but I think it's also given an opportunity to buy metals,” he said. “And maybe not so much gold but some of the other metals that haven't caught up with gold, for instance silver. It started to make a move up to $32, $33 [per ounce]. We come back down to $30, if we can stabilize over there, I think we get another run up to $36, $38, somewhere around there.”

Pavilonis said gold might be a different story, however. “I think it'll grind higher up towards $3,000,” he said. “I don't think it's going to be as easy, but if the rate cuts are still in the mix, I think there is a high probability that we continue to move higher.”

“I think you're still going to see a lot of central banks buying, a lot of movement away from the dollar away from U.S. treasuries and into precious metals,” he added. “But in the near term, I think it's had a nice run-up and I'm looking for a little bit of a pullback here.”

“I still believe it’s got some downside, and I think it's appropriate, even on the longer-term move to the upside,” he concluded. “I would say until maybe the tail end of the first week of June, it starts to bottom out, and then maybe the beginning of the second week we can start buying again.”

This week, 14 Wall Street analysts participated in the Kitco News Gold Survey, and sentiment on the precious metal has largely soured for the near term. Only three experts, representing 21%, expected to see gold prices climb higher next week, while eight analysts, fully 57%, predicted a price decline. Another three experts, representing 21% of the total, see gold trending sideways during the coming week.

Meanwhile, 195 votes were cast in Kitco’s online poll, with Main Street investors decidedly sunnier in their outlook for the yellow metal. 94 retail traders, or 48%, looked for gold prices to rise next week. Another 50, or 26%, predicted they would be lower, while 51 respondents, representing the remaining 21%, expect prices to remain rangebound during the week ahead.

Next week will be another slow one for economic news releases, with U.S. markets also closed on Monday for the Memorial Day long weekend. Highlights will include the U.S. Conference Board’s Consumer Confidence report on Tuesday, the release of preliminary U.S. Q1 GDP, weekly jobless claims, and pending home sales on Thursday, and Friday’s U.S. PCE and personal income and spending report.

“Best guess is more of a pullback after the holiday, but holding long positions,” said Mark Leibovit, publisher of the VR Metals/Resource Letter.

Marc Chandler, managing director at Bannockburn Global Forex, also sees further downside risks for gold in the near term.

“Gold set a new record high to start the week, reaching $2450, perhaps in reaction to the crash that took the life of the Iranian president,” he said. “However, a stronger dollar and higher rates saw gold sell off hard and reach nearly $2325.”

“The new highs in the spot market were not confirmed by the momentum indicators, which are still headed lower,” Chandler observed. “We note some reports suggesting China’s demand has slackened. The week ahead sees lighter data, and this could facilitate some consolidation. The US two-year yield extended its recovery from 4.70% recently to nearly 5%. The light calendar suggests that the 5% area may hold.”

“A bounce in gold may be challenged initially in front to $2375,” he said. “Support is seen in the $2275-$2300 area.”

Michael Moor, Founder of Moor Analytics, was looking at both the short- and longer-term technical picture for gold on Friday.

“Technically speaking, we are likely in a higher-timeframe bearish correction against the move up from $1,876.60,” he said. “The trade below $2,434.30 got this bearish, and we've seen 108 points from that, and then the trade below $2,421.60 also projected this downward $60 an ounce-plus, and we've seen 95.3 of that. On 5/22, we got the minor bearish reversal above, and then yesterday left another bearish reversal above.”

“We are currently holding exhaustion, final exhaustion is at $2,330 to $2,321.40,” Moor said. “Now, if we take that out and settle below there, then this is going to head down to $2,285.20 and it will confirm that we're in a larger correction as well. Then those next levels of possible exhaustion are going to be down at $2,239.60, to $2,235, and then lower.”

“Right now, I think that we're in a lower-timeframe bearish correction, and likely in a higher-timeframe bearish correction,” he explained. “So what does that mean? The lower-timeframe bearish correction means we're correcting against the most recent move up from $2,285.20. The higher-timeframe correction means we're also likely correcting against the move up from $1,876.60.”

“I think we're in both at the same time,” he said. “It's just that we could always run up and make another higher high and then correct from there. But right now, it looks like we're in a bearish direction in both time frames. And if we're in the higher-timeframe bearish correction, the ideal time for one of these lower exhaustion levels to hold is not until after the 21st of June. So we may see this coming off and consolidating and chopping around with big swings until that point.”

“If it's a new bear trend, it's a bear trend and it's going to blow through all of them,” he added. “But if it's going to hold one of them and start a new bullish structure, the likely timeframe for one of these exhaustion levels to hold more than temporarily is probably not until after the 21st of June.”

And Kitco Senior Analyst Jim Wyckoff sees gold prices declining further next week. “Steady-lower as serious near-term chart damage inflicted this week, including bearish double-top reversal on daily chart,” he said.

Kitco Media

Ernest Hoffman

Time to Buy Gold and Silver

Tim Moseley