Gold Retracts as US Data Hints at Mixed Sentiment and Inflation Concerns

Gold prices dip by half a percent, settling in the $2,340s on Monday, spurred by the revelation from US Consumer Sentiment data that suggests a prolonged period of elevated interest rates, thus diminishing gold’s allure as a non-interest-bearing asset.

The reversal in gold prices follows the release of the University of Michigan Consumer Sentiment Survey, revealing an unexpected drop in sentiment, coupled with an uptick in long-term inflation expectations. The preliminary sentiment index for May slid to 67.4 from 77.2, diverging sharply from the anticipated decline to 76.0. Concurrently, the long-run inflation expectations indicator rose from 3.0% to 3.1%.

Heightened inflation expectations imply potential delays in the Federal Reserve’s planned interest rate cuts, adversely impacting gold’s appeal as higher interest rates raise the opportunity cost of holding the precious metal compared to interest-bearing assets like bonds or cash.

Technical Analysis: Gold’s Corrective Movement

Gold prices (XAU/USD) undergo a corrective phase subsequent to their early May rally. The Relative Strength Index (RSI) signals a shift to neutral territory during the US session on Friday after reaching overbought levels, prompting a sell-off in prices.

Gold currently tests a significant support level around $2,350, derived from previous highs, with potential implications for further downward movement upon breach.

While the short-term trend suggests a bullish outlook, with gold poised to resume its upward trajectory, signs of reversal are not yet evident.

Should the uptrend resume, gold’s next target lies near $2,400, aligning with April’s highs. Confirmation of this resurgence would manifest with a breach above the $2,378 peak recorded on May 10.

Supported by bullish indicators on both daily and weekly charts, gold retains a favorable backdrop for potential future gains.