Gold prices extended their decline on Wednesday, May 14, dropping to their lowest level in five weeks as easing US-China trade tensions boosted market risk appetite. Spot gold fell below the critical $3,200 level for the first time since April 11, signaling further downside risks.
At the time of writing, XAU/USD was trading at $3,182 per ounce, down more than 2% on the day. The yellow metal’s struggles continued despite a softer US dollar, as rising US Treasury yields dampened gold’s appeal.
US Yields Surge, Pressuring Gold Prices
A significant driver of gold’s decline has been the surge in US bond yields. The 10-year Treasury yield climbed 5.5 basis points to 4.526%, while real yields, reflected by Treasury Inflation-Protected Securities (TIPS), rose to 2.234%. These higher yields increase the opportunity cost of holding non-yielding assets like gold, intensifying selling pressure.
On the macroeconomic front, April’s US Consumer Price Index (CPI) rose 2.3% year-over-year, slightly below expectations. Core CPI remained unchanged at 2.8%. Investors now turn their focus to upcoming Producer Price Index (PPI) and retail sales data, seeking clues on inflation dynamics and potential Federal Reserve policy shifts.
Fed’s Cautious Stance Limits Rate Cut Bets
Recent remarks from Federal Reserve officials have reinforced a cautious, data-dependent approach. As a result, market expectations for interest rate cuts have moderated. Pricing now suggests two rate cuts this year, down from three previously forecasted, aligning more closely with the Fed’s official guidance. This recalibration of rate expectations continues to cap gold’s upside potential.
Technical Analysis: Double Top Formation Points to $3,000
From a technical perspective, gold’s daily chart reveals a bearish “double top” pattern, indicating potential further losses. After breaching key support at $3,202, the next downside targets are seen at the 50-day moving average of $3,150 and the $3,100 mark. A sustained break below these levels could open the door for a decline towards $3,000, with $2,950 as a possible extension.
On the upside, gold must reclaim the $3,200 level to stabilize. Above that, resistance is seen between $3,250 and $3,300.
Long-Term Outlook: Safe-Haven Demand Remains
Despite recent weakness, some analysts remain optimistic about gold’s longer-term prospects. George Milling-Stanley, chief gold strategist at State Street Global Advisors, expressed confidence in gold’s resilience in a recent interview with Kitco News. He pointed out that the US dollar has not significantly benefited from positive trade developments, while factors such as potential inflation resurgence, slower economic growth, and a weaker dollar could support gold prices in the medium to long term.
Milling-Stanley also noted that while it is unclear whether the US economy will slip into a recession this year, ongoing debates around this possibility continue to sustain underlying safe-haven demand for gold.
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