Gold prices fell sharply on Wednesday, marking their second decline in three sessions, as improving global risk sentiment and rising US Treasury yields pressured the precious metal. The drop pushed XAU/USD below the $3,200 mark for the first time since April 11.
At the time of reporting, spot gold was trading at $3,182, down over 2% on the day, as markets reacted to easing trade tensions between the United States and China, which buoyed investor confidence despite lingering global economic concerns.
Trade Truce, Middle East Diplomacy Weigh on Gold
Investor sentiment received a boost after reports of progress in US-China trade negotiations. The positive developments sparked a shift from safe-haven assets like gold to riskier investments. Additionally, US President Donald Trump’s diplomatic tour of the Middle East, aimed at securing trade agreements with regional allies, further lifted market optimism. Talks with Japan and South Korea are reportedly nearing conclusion, adding to the positive mood.
Despite a weaker US dollar, bullion failed to benefit as rumors emerged that the Trump administration might push for a softer greenback by encouraging foreign currencies to appreciate.
Rising US Yields Add Pressure on Bullion
On the bond market front, US Treasury yields climbed significantly. The 10-year Treasury note yield rose by 5.5 basis points to 4.526%, while real yields, as indicated by the 10-year Treasury Inflation-Protected Securities (TIPS), increased to 2.234%, up five basis points.
This surge in yields came despite April’s inflation data showing a modest annual increase of 2.3%, slightly below expectations. Core inflation remained steady at 2.8% year-on-year. Typically, subdued inflation would raise expectations of monetary easing. However, recent comments from Federal Reserve officials reaffirmed a cautious, wait-and-see approach, prompting markets to scale back expectations of aggressive rate cuts.
Upcoming Economic Data in Focus
Traders are now looking ahead to key US economic indicators. The Producer Price Index (PPI) for April is expected to rebound from -0.4% to 0.2% month-on-month, while core PPI is projected to increase by 0.3%, reversing a previous decline. US Retail Sales data for April is also on the radar, with forecasts pointing to stagnant growth following a robust 1.5% increase in March.
Technical Outlook: Potential Gold Decline Toward $3,000
From a technical perspective, gold’s recent downtrend has been reinforced by the formation of a “double top” pattern, signaling potential further losses. With XAU/USD breaching the $3,202 support level, the next downside targets include the 50-day Simple Moving Average (SMA) at $3,150, followed by $3,100. A deeper decline could see prices testing the $3,000 level, with a possible extension to the double top’s target of $2,950.
On the upside, any recovery above $3,200 would bring immediate resistance at $3,250. A break beyond this level could open the path towards $3,300 and higher.
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