Gold prices extended their recovery, rising above $2,700 and eyeing further gains, fueled by mixed US CPI data that increased expectations for a Federal Reserve rate cut by June. While headline CPI accelerated, core inflation rose more slowly than expected, boosting the probability of a 25 basis point rate reduction, with the CME FedWatch tool showing a 63.8% chance of lower rates after the June meeting. This drove gold’s ascent to a pivotal level of $2,708, with potential resistance at $2,721 and the all-time high of $2,790 looming ahead. The US 10-year Treasury yield remained in a downward trend, bolstering the positive sentiment for gold. But at $2,708, it is a test of technical significance that may result in a correction if the Relative Strength Index shows it is overheating. A close above $2,721 will put gold into a position for a run to its all-time high. Downside support rests at $2,671, $2,648, and $2,640.
KEY LOOKOUTS
• Even higher market expectations for a Fed rate cut by June may continue to drive gold prices higher as long as inflation moves lower.
• Gold needs to clear some tough resistance at $2,708 and $2,721 to potentially drive prices toward the all-time high of $2,790
• Fast RSI moves could be an overheat sign, and gold prices might experience a short-term correction if momentum declines near major resistance zones.
• The US Treasury yields have been trending lower, currently below 4.70%, and are likely to further propel gold upward since lower yields decrease the opportunity costs of holding bullion.
The gold is near critical resistances at $2,708 and $2,721. If it breaks out above those levels, then it could continue pushing prices up toward the all-time high of $2,790. Additionally, growing market expectations for a Fed rate cut by June will continue to support the prices if inflation remains subdued. However, the sharp rise in the RSI indicates overheating and a short-term correction if momentum stalls. Moreover, the continued decline in US Treasury yields, which are currently below 4.70%, will further provide upside for gold as lower yields reduce opportunity costs for holding bullion.
A rise in the hopes of a Fed rate cut by June supports the gold prices and resistance at $2,708 and $2,721. A breakout might target $2,790; however, overbought RSI and declining Treasury yields bring caution.
• Growing market expectation for a 25 basis point rate cut by June supports gold’s upside.
• US CPI: Core inflation grows at a slower rate, increasing the chances of Fed rate cut.
• Critical resistance sits at $2,708 and $2,721; prices exceeding these levels is a possible threat for pushing up to its highs at $2,790
• An explosive rising RSI often spells overheating conditions that a near-term selling could be inevitable should the move get stuck up
• Treasury yields falling well under 4.70% decrease opportunity costs, aiding the rise in gold; bearish thesis from this arena ruled out by technical
• Buy-support levels arrive around $2,671,$ 2,648, $2,640.
• The upcoming US economic data, such as retail sales and jobless claims, will be critical in determining the market sentiment and direction of gold prices.
Gold prices are on the upswing due to increasing prospects of a rate cut by the Federal Reserve by June, following mixed US CPI data. Although the headline inflation has accelerated, core inflation increased at a slower pace, which has increased the chances of a 25 basis point rate cut. The market is now pricing in a 63.8% chance of lower rates after the June meeting, which has fueled demand for gold as a safe haven. Gold is facing key resistance at $2,708 and $2,721; breaking these levels could see it targeting the all-time high of $2,790.
XAU/USD Daily Price Chart
Sources: TradingView, prepared by ELLYANA
Technical indicators are hinting at being cautious, but the Relative Strength Index (RSI) reflects rapid growth here, which would mean overheating and a good chance of seeing a short-term correction. On the downside, one finds support lines at $2,671, $2,648, and $2,640. Yet, falling US Treasury yields, at this point less than 4.70%, continue to give gold prices their boost since falling yields lower the opportunity cost for holding non-yielding assets, such as bullion. Upcoming US economic data in the form of retail sales and jobless claims, for example, could decide the course of gold to maintain its bullish or pull back.
TECHNICAL ANALYSIS
The firm currently remains in an uptrend with prices above $2,700 and is seen making its way toward significant resistance at $2,708. A crack of this level will push gold to $2,721 and all-time high of $2,790. However, the Relative Strength Index is increasing rapidly, showing more and more bullish momentum, but also at a risk of overheating and short-term correction. Key support levels are at $2,671 (trendline), $2,648 (55-day SMA), and $2,640 (100-day SMA). If gold fails to break through resistance, a pullback towards these support zones could occur, while strong breaks could extend the rally further.
FORECAST
Gold is now bullish, with an excellent thrust above $2,700. If the price breaks above $2,708, then it should move into $2,721, which could hit $2,790 as the all-time high. Continued expectations for a June Fed rate cut and falling Treasury yields will push gold even higher. When gold clears $2,721, then it can open the route to a rally into $2,790 or higher.
If gold runs into resistance and cannot break above $2,708, there is a good chance of a pullback, especially if the RSI is showing signs of overheating. In this case, key support levels are at $2,671 (trendline), $2,648 (55-day SMA), and $2,640 (100-day SMA). A failure to hold above these levels could send the price lower, potentially testing $2,640 or lower. The risk of a correction is higher if momentum slows or if unfavorable economic data impacts sentiment.
