Gold prices have fallen below the $3,320 mark, continuing a downward trend that started with a sharp retreat earlier in the week. The fall in prices is largely attributed to the boost in risk sentiment, driven by the announcement of a trade deal between the US and the UK. As a result, traders have erased gold’s recent gains, which had previously pushed prices past the $3,400 level.
Impact of US-UK Trade Deal on Gold
The trade deal announcement, made by US President Donald Trump and UK Prime Minister Keir Starmer, significantly improved market sentiment. Investors are now more confident that the US could secure more trade agreements in the future. This optimism has caused a shift in market dynamics, with the US Dollar (USD) strengthening and risk appetite improving. Both of these factors have contributed to the bearish outlook for gold.
The US Dollar Index (DXY) surged past the key 100.00 level, rising 0.85% to 100.71. A stronger USD typically puts downward pressure on gold, as it makes the precious metal more expensive for foreign investors.
US Economic Data and Fed Outlook
The US labor market remains solid, as reflected by the latest economic data. Initial jobless claims were slightly lower than expected, providing further confidence in the strength of the US economy. This data is likely to keep the Federal Reserve on hold regarding interest rates, especially after the Fed’s decision to maintain rates unchanged this week.
Fed Chair Jerome Powell also indicated that there is no immediate need to reduce interest rates, which has further contributed to the rise in US Treasury yields. The 10-year Treasury yield is up 10 basis points at 4.375%, which is also bearish for gold, as higher yields provide an alternative for investors seeking better returns.
Gold Market Fundamentals: Central Bank Demand
While gold has faced headwinds, there is some positive news in terms of central bank demand. The World Gold Council reported that central banks, particularly in China, Poland, and the Czech Republic, increased their gold reserves in April. Notably, the People’s Bank of China (PBoC) added 2 tonnes of gold to its reserves for the sixth consecutive month.
Technical Outlook: Gold Price Faces Key Support Levels
Gold’s price has stumbled below the $3,400 level, indicating a potential for further declines. The Relative Strength Index (RSI) suggests that buying momentum is weakening, which could pave the way for a deeper drop. A key level to watch is $3,300, and if gold falls below this threshold, it could open the door for further declines, potentially towards the May 1 cycle low of $3,202.
On the upside, if gold manages to climb back above the $3,350 level, it could test the $3,400 resistance once again. However, the overall momentum suggests that the path of least resistance remains downward for now.
Conclusion
In summary, gold is facing a challenging short-term outlook due to improved market sentiment, a stronger US Dollar, rising Treasury yields, and a solid US labor market. The US-UK trade deal has further fueled optimism, contributing to the decline in gold prices. However, the ongoing demand for gold from central banks and the potential for future monetary policy shifts by the Fed could support prices in the longer term.
Traders should monitor key technical levels, with $3,300 serving as critical support. If gold fails to hold above this level, further declines could follow. Conversely, a break above $3,350 could signal a short-term recovery toward $3,400.
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