- Gold prices continued their downward trajectory on Thursday, influenced by a confluence of market dynamics.
- Optimism surrounding US-China trade relations dampened demand for the safe-haven asset, while rising US Treasury yields further exerted downward pressure.
- Market participants are now keenly awaiting the release of US Producer Price Index (PPI) data and a speech by Federal Reserve Chair Jerome Powell for further market direction.
The gold price (XAU/USD) extended its intraday decline throughout the Asian trading session on Thursday, reaching a low of $3,135, a level not seen since April 10. The easing of trade tensions between the United States and China has diminished the appeal of the precious metal as a safe haven, while simultaneously, reduced expectations for aggressive interest rate cuts by the Federal Reserve (Fed) have added to the downward pressure. The 90-day trade truce between the US and China has alleviated concerns about a potential US recession, prompting investors to scale back their bets on a more dovish monetary policy stance from the Fed. Consequently, US Treasury bond yields have been pushed higher, increasing the opportunity cost of holding non-yielding assets like gold. The benchmark 10-year Treasury yield, for instance, has seen a noticeable increase this week, reflecting the shift in market sentiment.
Meanwhile, the US Dollar (USD) bulls have remained relatively subdued, despite the aforementioned factors that would typically support the currency. Market participants appear to be adopting a wait-and-see approach, anticipating the release of the US Producer Price Index (PPI) data and Fed Chair Jerome Powell’s scheduled remarks later in the day. The PPI data will provide insights into inflationary pressures within the US economy, potentially influencing the Fed’s future policy decisions. Powell’s speech will be closely scrutinized for any hints regarding the central bank’s outlook on the economy and its intentions regarding interest rate adjustments. This cautious sentiment, however, has provided little respite for the gold price. Even a marginal deterioration in global risk appetite, evidenced by a generally weaker performance in equity markets, has failed to alleviate the bearish pressure surrounding the XAU/USD pair. Furthermore, a breach of key technical support levels has emboldened bearish traders, reinforcing the likelihood of further price depreciation for the commodity. Technical analysts are pointing to the break below the $3,150 level as a significant bearish signal, potentially paving the way for a test of lower support levels in the near term.
