Gold prices have fallen as U.S. economic data and trade agreements lowered the demand for safe-haven assets. Currently, gold is priced at $3,336, which is almost a 1% drop. The Federal Reserve is set to keep interest rates steady at 4.25%-4.50% for the fifth consecutive time. This follows a four-week decline in Initial Jobless Claims, indicating a strong labor market. However, Durable Goods Orders have decreased, mainly due to a drop in aircraft orders.

US and Japan Trade Agreement

The U.S. and Japan have struck a trade agreement, with possible discussions involving the EU. At the same time, the U.S. Dollar has bounced back from a two-week low, making gold more expensive for foreign buyers. Upcoming key events include the Fed’s decision, GDP data, and Nonfarm Payroll numbers. U.S. Treasury yields, including the 10-year note, have gone down, dropping three basis points. Core Durable Goods Orders showed slight growth, suggesting businesses are investing. The likelihood of the Fed keeping rates steady stands at 96% according to forecasts. Gold prices have dropped below $3,350 and are approaching the $3,320 mark, with a bearish reading on the RSI. Central banks, especially in emerging economies, have been boosting their gold reserves. Gold remains a safe asset against economic uncertainty and currency losses. With gold facing downward pressure, the resilient labor market is a major hurdle. The addition of 272,000 jobs in May exceeded expectations, reinforcing economic strength and reducing the immediate need for safe-haven assets. This points to a higher chance of further weakness or stability rather than a strong price increase in the near term.

US Dollar Recovery

The recovery of the U.S. Dollar, as the Dollar Index (DXY) stays above 105, will keep gold pricey for holders of other currencies. This factor will be crucial since the Federal Reserve is being cautious about any rate cuts, unlike other central banks such as the ECB. This difference in policy should support the dollar. While Treasury yields have fluctuated, the 10-year note remains high at about 4.4%. This presents a significant cost for holding gold, which doesn’t yield returns. As long as there are decent, risk-free returns from bonds, gold’s appeal is weakened. We anticipate this trend will limit any short-term price increases. In response, we are considering buying put options or creating bear put spreads to guard against a possible drop toward the $2,300 support level per ounce. This strategy allows us to benefit from declines while limiting our risk. The bearish signal from the RSI backs our short-term negative outlook. However, we’re also keeping a close eye on central banks, which are making significant purchases, providing a solid price floor. The World Gold Council reported that central banks added a net 290 tonnes in the first quarter of 2024, showing strong strategic demand. This institutional buying is likely to prevent a large price drop. Moving forward, we will focus on inflation data and statements from the central bank. Historically, gold prices have bottomed and started to rise before or during a Fed rate-cutting cycle. Thus, we will take advantage of any further price weakness to establish long-term bullish positions through long-dated call options, preparing for a future policy shift. Create your live VT Markets account and start trading now.

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