Gold prices fell by over 1.50% after a tariff agreement between the US and China, leading investors to shift their money into riskier assets. Despite a slowdown in US Retail Sales and mixed data from the housing market, inflation expectations remain high. Gold had a rough week as market confidence grew, with XAU/USD trading at $3,187, down from a daily peak of $3,252. The economic data showed trading within the $3,120-$3,265 range, but momentum cooled as the week ended.

US Consumer Sentiment Drops

In May, consumer sentiment in the US fell, as survey results indicated rising inflation expectations. Even though housing starts were mixed and import prices rose by 0.1%, Treasury yields bounced back, strengthening the US Dollar. Retail Sales slowed down in April, suggesting a deceleration. The Atlanta Fed projects potential US growth at 2.4% for Q2 2025. The market is closely watching the Federal Reserve’s moves and upcoming economic events. This week, the announcement of a 90-day trade pause between the US and China aims to resolve their trade issues. The US 10-year Treasury yield remains steady at 4.437%, with real yields at 2.0907%. Overall, changes in gold prices are influenced by geopolitical events, economic conditions, inflation expectations, and currency shifts. Actions by central banks and interest rate forecasts also significantly impact its value.

The Impact of Economic Signs and Policy

Recent updates show that gold is losing its shine, closely tied to changes in risk appetite and US economic data. The metal dropped more than 1.5% after the trade pause news between Washington and Beijing. This agreement seems to encourage investment in stocks and other riskier assets, pulling funds away from safe havens like gold. Even though some US economic indicators point to weakness—especially in Retail Sales and housing starts—inflation expectations remain steady. This suggests that despite a minor slowdown in consumer spending, price pressures still persist. Treasury yields have slightly improved, particularly for long-term bonds, with the benchmark 10-year yield above 4.4%. This stability and strong real yields have supported the US dollar, making gold less attractive. The Federal Reserve’s role is crucial. No immediate policy changes are anticipated, but expectations for rate cuts are starting to waver as inflation proves stubborn. The Atlanta Fed’s forecast for a 2.4% growth in the second quarter of next year remains, but the underlying data isn’t consistently strong. A minor drop in Retail Sales in April hints at a potential slowdown in consumer spending, especially if inflation lingers longer than anticipated. Last week, gold traded in a clear range between $3,120 and $3,265. However, momentum faded near the top of that range, with the price settling closer to $3,187. This represents a significant drop from earlier highs around $3,252, indicating a cooler market sentiment. Consumer confidence indicators have also shown a decline. May’s metrics point to growing worries about rising living costs and economic stability. While this anxiety could benefit gold over the long term, it hasn’t yet sparked immediate demand. The modest rise of 0.1% in import prices last month complicates the inflation situation. This small increase is unlikely to prompt the Fed to act aggressively on rates, leaving room for data-driven decisions in the future. Still, policymakers remain cautious, monitoring jobs data, inflation trends, and inflation expectations closely. Moving forward, price movements in metals will likely depend on how Treasury yields behave and the strength of the dollar, along with geopolitical events and the durability of trade agreements. Currently, the gold chart indicates that traders have positioned the metal in a neutral space after struggling to break past recent highs. Although volatility has decreased, it may only be temporary. Significant moves in upcoming inflation data or a stronger-than-expected jobs report could prompt renewed interest. Conversely, if inflation pressures decline more clearly, that may increase expectations for earlier rate cuts, making gold more appealing again. Additionally, derivative markets may look to implied volatility and options skew for signs of potential stress or opportunity. As always, risk exposure should be assessed around macro data releases and possible policy changes. The ongoing tension between stubborn inflation and cooling growth will likely dictate market movements in the coming weeks. Create your live VT Markets account and start trading now.

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