Gold Prices Forecast: Weak as Treasury Yields Climb Ahead of Retail Sales Data

Gold Prices Under Pressure as Treasury Yields Rise

Gold prices are experiencing downward pressure due to a rise in U.S. Treasury bond yields, as traders anticipate May retail sales data for insights into consumer health. The market is also on edge ahead of speeches from several Federal Reserve officials, adding to the uncertainty.

At 10:06 GMT, XAU/USD is trading $2312.05, down $7.24 or -0.31%.

Treasury Yields Edge Higher

On Tuesday, the 10-year Treasury yield increased slightly to 4.2808%, while the 2-year Treasury note yield rose to 4.7629%. These modest upticks in yields are impacting gold prices, as higher yields typically reduce the attractiveness of non-yielding assets like gold.

Key Economic Data Releases

The market is eagerly awaiting the release of several key economic indicators. May’s retail sales data, industrial production, manufacturing production, and business inventories are expected Tuesday morning. Later in the week, reports on home sales, jobless claims, and housing starts will provide further economic insights.

Federal Reserve Outlook

Last week, the Federal Reserve maintained its benchmark policy rate at 5.25%-5.50% and suggested that only one rate cut might occur this year. Minneapolis Fed President Neel Kashkari mentioned on Sunday that a single rate cut in December is a reasonable prediction, emphasizing the need for more evidence to ensure inflation is heading back to the 2% target.

Philadelphia Fed President Patrick Harker echoed this sentiment, stating that one rate cut by year-end is appropriate if his economic forecast holds. However, he acknowledged the possibility of changing this view based on forthcoming data. Harker pointed out that while recent inflation data is encouraging, progress has been modest, necessitating a cautious approach.

Market Sentiment and Forecast

Gold prices have fluctuated recently without significant movement, as noted by Matt Simpson, senior analyst at City Index. He suggested that disappointing retail sales could trigger a breakout above $2,350 for gold. The probability of a rate cut in November stands at 75%, according to CME Group’s FedWatch Tool, which could further influence gold’s trend.

Central Bank Gold Purchases

Despite high prices, central banks are expected to continue adding to their gold reserves, driven by ongoing macroeconomic and political uncertainty, as highlighted by the World Gold Council’s annual survey.

Market Forecast: Cautious Short-Term, Bullish Long-Term

In the short term, gold prices are likely to remain under pressure due to rising Treasury yields and cautious sentiment ahead of key economic data and Fed speeches. However, the potential for interest rate cuts later in the year and sustained central bank purchases indicate a bullish long-term outlook for gold. Traders should remain cautious in the near term but consider the long-term bullish prospects as economic conditions evolve.

Technical Analysis

Gold is likely to remain under pressure or rangebound as long as it remains under the 50-day moving average at $2343.84. This is resistance and a potential trigger point for an upside breakout.

On the downside, the swing bottom at $2277.34 is the trigger for an acceleration lower.