Gold prices saw an increase during the North American session on Friday as the US dollar weakened. Traders took the opportunity to secure profits ahead of the weekend. Comments from a Federal Reserve Governor indicated a possible rate cut in July, helping gold rise to $3,353, which is up 0.43%. Market sentiment improved after the University of Michigan reported growing consumer optimism about the economy and potential decreases in inflation. Fed Governor Christopher Waller suggested interest rate cuts, which led to lower US Treasury yields, further supporting gold prices.

US Dollar and Consumer Sentiment

The US Dollar Index dropped by 0.13% to 98.48, making gold more affordable for foreign buyers. Predictions for monetary easing by the end of the year have shifted to 45 basis points, a rise from the previous 42 basis points. The Consumer Sentiment Index improved from 60.7 to 61.8, signaling an expectation of lower inflation rates. Although strong retail sales showed price hikes due to tariffs, overall US economic data presented mixed inflation trends, with the Producer Price Index showing a decline. With Treasury yields falling, gold became more attractive. The 10-year Treasury yield decreased by three basis points to 4.421%. Current interest rate predictions show a 94% chance of keeping rates the same at the July meeting, and a 6% chance of a rate cut.

Gold Price Speculation

Gold is likely to remain around $3,350. If it breaks the $3,377 resistance, it could target $3,400. However, if it falls below $3,300, further declines might occur. We observe that gold, currently trading around $2,350, is responding to changing monetary policy expectations. Waller’s comments suggest possible rate cuts, which traditionally benefit non-yielding assets like gold. This view is supported by a recent 0.2% drop in the Producer Price Index (PPI) for May, indicating faster-than-expected cooling of inflation. The decrease in US Treasury yields, with the 10-year note near 4.25%, lowers the opportunity cost of holding gold. Although the US Dollar Index remains high at around 105, derivative markets anticipate a future decline due to expected rate cuts. Historically, the six months leading up to the first Fed rate cut have seen gold average gains of over 8%, and we expect this trend to continue. According to the CME FedWatch Tool, there is now nearly a 65% likelihood of a rate cut by September. This makes long-dated call options an appealing strategy. Traders might want to consider buying calls or bull call spreads to take advantage of potential price increases, especially if it breaks the key resistance level near $2,377. Alternatively, using the $2,300 level for protective puts can help manage risk if economic data unexpectedly improves. Create your live VT Markets account and start trading now.

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