Gold prices declined sharply on Friday, trading under the key support level of $3,300 for a nearly 2% loss. Investors are currently looking for finalized trade agreements between China and the U.S. Simultaneously, core Personal Consumption Expenditures (PCE) data is coming in hot, further adding to this downward spiral. Those most recent figures appear to be having a profound impact on market sentiment, generating a newfound risk appetite that has pushed downward pressure onto gold.
The remarkable thing, as market observers point out, is that gold today is trading with extreme downside pressure. As of today, it is still under that key threshold of $3,300. This level has a history of being a major pivoting point for traders. The gold 50-day Simple Moving Average (SMA) is $3,324 as of this writing. The 20-day SMA on the other hand is marginally higher, currently around $3,356. This sustained bearish sentiment is characteristic of the current market operable under noisy skies, largely fueled by changing economic times.
Trade Deal Developments Impact Gold Prices
Gold has faced significant headwinds as a result of the recently finalized trade deal between the United State and China. This move, announced back in June of last year, has sent shockwaves through the industry. This news has raised investors’ hopes for stocks. As a result, they’re turning towards assets outside of their traditional safe-haven confines such as gold.
In a bearish scenario, if gold sustains a break below the mid-point of the April low-high move, it could find support at $3,228. Analysts warn that if gold breaks through this level, it may open the door to further declines, potentially testing the psychological support level of $3,200. The 100-day SMA, currently at $3,164, is another potential deeper support level that traders are keenly watching.
Specifically, a dramatic change in the market dynamics occurred this week, as the change in risk appetite helped take the shine off gold. As investors regain their risk appetite for equities, gold is losing safe-haven driven demand.
Economic Indicators Influence Market Sentiment
The recently released real PCE inflation numbers for May were exactly in line with market forecasts. This unlikely alignment, if it happens, would be bearish for gold. These figures are especially vital now, as they provide one of the best early indicators of overall consumer spending and core inflation trends. Yet despite all of this, President Trump is still twisting the Federal Reserve’s arm to drop interest rates. This introduces a new, added layer of complexity to the market landscape.
The CME FedWatch Tool indicates a thrilling 180! The odds of a 25-basis point September rate cut have rocketed to 72%. Of course, this expected move by the Fed would have additional impact on investor behavior related to gold. When the Fed cuts interest rates, it reduces the opportunity cost of holding non-yielding assets such as gold, making it more attractive.
“Liberation Day” – Thursday’s final Gross Domestic Product (GDP) reading for the first quarter showed that the US economy had contracted by 0.5%, as imports increased before the imposition of the higher tariff rates announced by Trump on “Liberation Day.”
The Path Forward for Gold
Indeed, according to the analysts, gold must retake the bullish momentum. In order to do this, it needs to convincingly break beyond the 20-day SMA given the prevailing market conditions. This will again spark interest in gold, and it can push prices towards resistances of $3400 and $3452. The bullish scenario is contingent upon broader economic trends. It depends on how investors respond to each new set of economic data and the decisions the Fed makes.
The truth is that, even with the recent pullback, gold continues to be an indispensable asset in highly uncertain times. Its true power comes to light especially in “risk-off” markets when investors look for shelter from market swings. Through all this uncertainty, as traders continue to work through these new dynamics, key indicators will remain a prominent focal point.