- Gold reacts to US Consumer Sentiment data showing a decline in optimism and higher inflation expectations.
- Rising inflation could lead to sustained high-interest rates, reducing Gold’s appeal as a non-yielding asset.
- Uptrending XAU/USD corrects downwards, testing a significant support level.
Gold price (XAU/USD) experienced a downward correction, dropping around half a percent to the $2,340s on Monday in response to the US Consumer Sentiment data indicating a potential prolonged period of elevated interest rates, diminishing Gold’s allure as a non-yielding asset.
Gold price declines following Michigan Sentiment Survey data
The price of Gold reversed its upward momentum after the release of the University of Michigan Consumer Sentiment Survey, revealing a surprising decline in sentiment alongside heightened inflation expectations.
The initial University of Michigan Consumer Sentiment index for May plummeted to 67.4 from 77.2, contrary to economist predictions of a softer dip to 76.0.
Simultaneously, the long-term inflation expectations component rose to 3.1% from the previous 3.0% figure.
The increase in inflation expectations signals the potential for the Federal Reserve (Fed) to postpone expected interest rate cuts, a negative factor for Gold as higher interest rates make holding Gold less appealing compared to interest-bearing assets such as bonds or cash.
Technical Analysis: Sharp correction in Gold price
The Gold price (XAU/USD) is undergoing a corrective move after its early-May rally.
The Relative Strength Index (RSI) momentum indicator shifted into neutral territory during the US trading session on Friday, issuing a sell signal, prompting a corresponding price decline.
Gold has approached a crucial support level from previous peaks at $2,350, where it is currently testing for a break. A successful breach could lead to further downward movement.
XAU/USD 4-hour Chart
Despite the current pullback, the short-term trend remains predominantly bullish, hinting that the precious metal might halt its correction and resume its uptrend at some point. However, there are no clear signals of this reversal yet.
If the uptrend does resume, the next target for Gold would likely be around $2,400, approximately at the level of the April highs. A break above the $2,378 high on May 10 would confirm this upward momentum.
The medium and long-term charts (daily and weekly) also reflect a bullish sentiment, providing additional support for Gold.
Economic Indicator
Last release: Fri May 10, 2024 14:00 (Prel)
Frequency: Monthly
Actual: 3.1%
Consensus: –
Previous: 3%
Source: University of Michigan
Additional Insight:
1. Amidst rising inflation expectations, investors may turn to alternative investments like stocks or commodities as a hedge against inflation, diverting attention from Gold.
2. The technical correction in Gold’s price presents an opportunity for traders to carefully monitor the support levels and potential reversal points for strategic entry or exit points in the market.
3. A break above the $2,378 high could signal a resurgence in bullish momentum for Gold, attracting more interest from investors seeking safe-haven assets.
