Gold Price Falls to $2,377 as Fed Downplays Rate Cuts, Uptrend Ahead?

Gold prices edged lower on Friday, trimming some of their weekly gains as Federal Reserve officials provided a more cautious outlook on interest rate cuts.

The precious metal had surged to nearly $2,400 an ounce earlier in the week, buoyed by soft U.S. economic data. However, it pulled back on Thursday and Friday.

Gold retreats as Fed officials downplay rate cuts

The yellow metal fell after a series of Fed officials warned against expecting immediate reductions in interest rates. Members of the central bank’s rate-setting committee emphasized the need for more substantial evidence that inflation is decreasing beyond the slightly soft April inflation reading.

This led traders to reduce their expectations for a rate cut in September. Consequently, the U.S. dollar and Treasury yields rebounded from earlier losses.

Despite this pullback, softer-than-expected consumer price index readings have positioned gold for a 0.7% weekly gain. The metal remains in sight of its record high of over $2,430 an ounce, though reaching this level soon appears unlikely.

Economic Data Impacting XAU/USD Price

The gold price (XAU/USD) exhibited a bearish bias on Friday, retreating from the nearly $2,400 mark. Previous bullish moves were driven by softer-than-expected U.S. inflation data for April, which had raised hopes for Fed rate cuts.

However, Fed officials’ cautious stance on maintaining higher borrowing costs for longer has dampened expectations for rate cuts this year. This stance has strengthened the U.S. dollar, thereby exerting downward pressure on gold, as higher interest rates can reduce investment demand for the non-yielding metal.

In the absence of significant U.S. economic data, market participants are closely monitoring statements from Fed officials, including Kashkari, Waller, and Daly, who are set to speak later on Friday.

Additional Influences on XAU/USD

Recent data showed an increase in weekly Initial Jobless Claims to 222K for the week ending May 11, up from 232K the previous week, exceeding the 220K estimate. Housing Starts rose by 5.7% month-over-month to 1.36 million in April, while Building Permits fell by 3% to 1.44 million.

Atlanta Fed President Raphael Bostic indicated signs of cooling inflation in the recent CPI report but prefers to wait for May and June data to confirm this trend.

Cleveland Fed President Loretta Mester stated that it is too soon to determine if progress on inflation has stalled, while Richmond Fed President Tom Barkin highlighted the need to keep borrowing costs high to ensure inflation targets are met.

Financial markets are currently pricing in nearly 75% odds of a Fed rate cut in September, up from 65% earlier in the week. Markets are also anticipating full 25 basis point cuts before the end of the year, according to the CME FedWatch Tool.

Gold Technical Outlook

Gold is trading at $2,377.975, up 0.07% today. The 4-hour chart shows the pivot point at $2,373.80, which serves as a crucial support level.

Immediate resistance is at $2,398.36, followed by $2,417.77 and $2,438.75. On the downside, immediate support is at $2,352.15, with further support at $2,307.74 and $2,277.84.

Technical indicators highlight the Relative Strength Index (RSI) at 59, indicating balanced momentum. The 50-day Exponential Moving Average (EMA) stands at $2,353.83, reinforcing the bullish trend.

An upward trendline supports gold near $2,373, with a doji candle closure above this pivot point likely to drive a buying trend.

Overall, gold remains bullish above $2,373.80, but a break below this level could trigger a sharp selling trend.