Gold rallies as US stats and geopolitical shockwaves trigger haven demand
- Gold boosted by April’s unexpected PPI drop fuels Fed rate cut speculation.
- Retail Sales slow sharply to 0.1% as tariffs weigh on consumer spending, hinting at broader economic softness.
- Fed rate cut expectations rise to 53 bps for 2025; DXY dips 0.15% to 100.88, supporting Gold recovery.
Gold prices recovered some ground earlier on Thursday during the North American session after US economic data suggested that factory gate inflation continues decelerating. At the same time, consumer spending was debilitated due to US tariffs. At the time of writing, XAU/USD trades at $3,202, up by 0.82%.
XAU/USD gains 0.82% after weaker inflation and spending data revive easing hopes, lifting Bullion off five-week low
After diving to a five-week low of $3,120, the non-yielding metal found bids that pushed Bullion back above $3,200. Data from the United States (US) showed that the Producer Price Index (PPI) in April fell unexpectedly by 0.5% MoM, missing an estimated 0.2% increase. The core PPI dropped by 0.4%, below forecasts of a 0.3% expansion.
At the same time, Retail Sales for the same period slowed, edging up by 0.1% MoM, after March’s figures were upwardly revised to 1.7%. Economists had expected the numbers to remain unchanged compared to the previous month.
Initial Jobless Claims for the week ending May 10 rose by 229,000, as expected, unchanged from the previous week.
XAU/USD edged up after the data, and so far, bulls have reclaimed the $3,200 figure, as the Greenback, as measured by the US Dollar Index (DXY), fell 0.15% to 100.88.
Market participants increased their bets that the Federal Reserve (Fed) will ease policy by 53 basis points (bps) in 2025, up from the 48.5 expected on Wednesday.
The de-escalation of the US-China trade war impacted the bullion price amid improved risk appetite. Gold fell from around $3,326 to $3,207, resulting in a loss of over $120. However, it has since recovered, as US data reflects a sluggish economy.
Ahead in the week, the US economic docket will feature further Fed speaking and the University of Michigan (UoM) Consumer Sentiment.
XAU/USD Price Forecast: Technical outlook
From a technical standpoint, Gold’s bounce could be short-lived if buyers fail to achieve a daily close above $3,200. In that case, they must surpass the May 14 peak of $3,257 to remain hopeful of testing $3,300 and trimming weekly losses. Nevertheless, momentum favors further downside, as depicted by the Relative Strength Index (RSI). With that in mind, traders should be warned that the ongoing leg-up could be a correction of an ongoing downtrend.
On the flipside, if XAU/USD closed on a daily basis below $3,200, further downside is seen, with the 50-day Simple Moving Average (SMA) at $3,155 seen as the next support level, ahead of $3,100.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
