The price of gold (XAU/USD) declined by 0.83% to settle at $3,289, giving up earlier gains that saw it reach as high as $3,345. The retreat came despite a drop in U.S. yields, with market sentiment pressured by ongoing fiscal uncertainty and renewed geopolitical risks.
The U.S. Dollar Index (DXY) rose 0.18% to 99.86, trimming earlier weekly losses and weighing on the dollar-denominated precious metal. A firmer dollar typically dampens demand for gold by making it more expensive for holders of other currencies.
U.S. bond yields fell slightly, with the 10-year Treasury yield easing three basis points to 4.55%, and real yields slipping by four basis points to 2.207%. The move followed the House of Representatives’ approval of former President Trump’s budget plan, which is projected to add $4 trillion to the national debt. The measure now heads to the Senate for consideration.
Investor sentiment remained cautious after Moody’s downgraded the U.S. government’s credit rating from AAA negative to AA1 stable, citing concerns over rising deficits and fiscal policy direction. The downgrade added to pressure on U.S. assets, including the dollar and Treasuries.
Despite Thursday’s losses, the broader outlook for gold remains positive, underpinned by geopolitical tensions. Reports indicate Israel is preparing potential military action against Iranian nuclear facilities should diplomatic talks with the U.S. collapse, according to Israeli news outlet Walla.
Economic data released Thursday showed signs of resilience in the U.S. economy. The S&P Global Manufacturing PMI for May rose to 52.3, beating forecasts and the previous month’s reading of 50.2. The Services PMI also climbed to 52.3, indicating ongoing expansion. Meanwhile, initial jobless claims fell to 227,000, slightly below expectations, reflecting continued labor market strength.
Federal Reserve Governor Christopher Waller noted that markets are closely watching fiscal developments and added that if current trade policies persist, the Fed could consider rate cuts later in the year. Futures markets are currently pricing in approximately 50 basis points of easing by year-end, according to data from the Chicago Board of Trade.
Technical Outlook
Gold remains in an uptrend despite Thursday’s pullback, with the Relative Strength Index (RSI) staying above the 50-neutral mark, suggesting bullish momentum persists. Immediate resistance lies at $3,300, followed by $3,345 — this week’s high — and then $3,400. A breakout beyond those levels could pave the way toward the May 7 peak of $3,438.
On the downside, a daily close below $3,300 could signal further weakness. Support is seen at the May 20 low of $3,204, with additional support at the 50-day Simple Moving Average, currently at $3,191.
Gold traders will be watching closely for upcoming U.S. housing data and speeches from Federal Reserve officials scheduled for Friday.
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