Gold prices suffered a sharp decline of over 3% on Monday, tumbling more than $100, following a boost in market risk appetite after a breakthrough in U.S.-China trade talks. At the time of writing, XAU/USD was trading at $3,225, after briefly reaching a daily high of $3,326 earlier in the session.
The decline in gold prices came as Wall Street registered gains following the announcement of a 90-day tariff reduction agreement between the U.S. and China. Both nations agreed to lower their respective tariffs — from 145% to 30% for U.S. duties and from 125% to 10% for Chinese tariffs — in a move to ease tensions and keep discussions moving forward toward a potential trade deal. This news sparked optimism in the markets, particularly boosting risk-driven assets.
As a result, gold, often viewed as a safe-haven asset, fell sharply as the U.S. Dollar surged. The U.S. Dollar Index (DXY), which measures the dollar’s value against six major currencies, soared by more than 1.25%, reaching 101.74, fueling a decline in gold prices. Additionally, rising U.S. Treasury yields contributed to the downward pressure on gold, with investors scaling back expectations for aggressive rate cuts from the Federal Reserve (Fed).
Market data revealed that traders have lowered their bets on multiple rate cuts by the Fed, with expectations now leaning toward just two reductions instead of three, further strengthening the U.S. Dollar and weakening gold.
Focus Shifts to U.S. CPI Data
As the gold market absorbs the effects of the U.S.-China trade deal, traders are now turning their attention to the upcoming U.S. Consumer Price Index (CPI) report, set to be released on Tuesday. The CPI data will be closely watched, as it could offer more clues about inflation trends in the U.S. and influence the Fed’s future monetary policy. Economists expect the headline CPI to remain steady at 2.4% year-on-year, with core CPI, excluding volatile items, also predicted to stay unchanged at 2.8%.
In addition to CPI, the Producer Price Index (PPI) and Retail Sales reports will also play a key role in shaping market sentiment in the coming days.
Gold Prices Pressured by Rising U.S. Treasury Yields
U.S. Treasury bond yields have been on the rise, with the 10-year Treasury note yield climbing seven basis points to 4.453%. U.S. real yields also remained stable at 2.163%, based on the yield of the 10-year Treasury Inflation-Protected Securities (TIPS). These rising yields, coupled with a strengthening dollar, continued to weigh heavily on gold, which offers no yield, making it less attractive in a rising yield environment.
In the global gold market, the World Gold Council reported that the People’s Bank of China (PBoC) added 2 tonnes to its gold reserves in April, marking the sixth consecutive month of gold purchases. Meanwhile, the National Bank of Poland (NBP) increased its reserves by 12 tonnes to 509 tonnes, and the Czech National Bank added 2.5 tonnes to its holdings in April.
Fed Rate Cuts and Market Expectations
Swap markets have already priced in the first 25 basis points (bps) rate cut by the Fed for the July meeting, with an additional reduction expected by the end of the year. This shift in expectations has been a key factor driving the strength of the U.S. Dollar and limiting any potential rebound in gold prices.
Technical Outlook for XAU/USD: Price Faces Downward Pressure
The technical outlook for gold remains bearish in the near term. Gold’s recent uptrend has been halted, and the metal is now approaching a test of the May 1 daily low of $3,202. A break below this level could push XAU/USD toward the 50-day Simple Moving Average (SMA) at $3,137. If this level is breached, further declines toward $3,100 are possible.
On the upside, if gold prices manage to regain momentum and rise above the $3,300 mark, the next key resistance is seen at $3,350. A successful break above this level could open the door for a move toward $3,400 and beyond.
In conclusion, the gold market is facing significant pressure from a strong U.S. Dollar, rising Treasury yields, and shifting expectations about future Fed rate cuts. The release of the U.S. CPI data will be a critical factor in determining the next directional move for gold.
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