Gold price stays resilient above $2,500 as inflation fears subside

Key points:

1. Gold retreats from a daily high of $2,529 after US inflation data boosts odds of a 25 bps Fed rate cut.
2. Rising US Treasury yields and a stronger US Dollar weigh on the non-yielding metal with the 10-year T-note climbing to 3.655%.
3. CME FedWatch Tool shows 71% chance of a 25 bps cut.

The price of gold traded at $2,507.48 per troy ounce, as of 9 a.m. ET. That’s down 0.26% from yesterday’s gold price per ounce and up 21.35% since the beginning of the year.

The lowest trading price within the last 24 hours: $2,500.95 per ounce. The highest gold spot price in the last 24 hours: $2,528.86 per ounce.

The US Dollar strengthened

Amid concerns that the Federal Reserve might opt for a smaller rate cut than expected, market participants drove US Treasury yields higher. Fears that the Fed could reduce interest rates by just 25 basis points (bps) instead of the anticipated 50 bps influenced the move.

The dollar has traded in a strong and tight range through the first five months of the year. Looking forward to the next 12 months, we think there are a number of factors that will keep the US dollar stronger for longer. Chief among those reasons is the strength of the US economy.

The yield on the US 10-year Treasury note climbed to 3.655%, rising by 1.5 bps. The US Dollar strengthened in response, with the Dollar Index (DXY) reaching a daily high of 101.82, before settling at 101.68 at the time of writing.

Gold prices remain steady

Gold prices are steady, consolidating between $2,500 and $2,531. While the overall momentum remains bullish, as indicated by the Relative Strength Index (RSI) holding above its neutral line, the flat reading suggests a balance between buyers and sellers.

A breakout above the all-time high of $2,531 could open the door to the next resistance at $2,550, with the psychological level of $2,600 being the following target.

On the downside, a drop below $2,500 would expose the August 22 low of $2,470 as the next support. If the decline continues, the next demand area would be around $2,450 to $2,440, a zone supported by the 50-day Simple Moving Average (SMA) and the former May 20 high.

Things that drive gold prices high:

1. According to the CME FedWatch Tool, the probability of a 50 bps rate cut dropped to 29%, while the odds for a 25 bps cut rose to 71%.
2. Separately, a CNN poll indicated that Vice President Kamala Harris won the recent presidential debate against former President Donald Trump.
3. In the geopolitical space, US Secretary of State Anthony Blinken and the UK’s David Lammy heightened concerns that the US and UK could grant Ukraine the ability to use weapons from Western nations to strike inside Russia.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.