Gold prices remained range-bound in recent weeks after the bullion’s sharp drop last month, triggered by worries of a wider conflict in the Middle East. Today, XAU/USD held its ground as investors awaited U.S. economic data for insights on potential interest rate cuts by the Federal Reserve. A slight increase in the U.S. dollar limited gains.
Recent gold price action
Gold remained mostly flat at $2,312.61 in today’s trading, while U.S. gold futures for June delivery settled 0.1% lower at $2,322.3 per ounce.
The dollar rose by 0.1% amid renewed expectations of rate cuts this year, which could make gold less appealing for foreign currency holders.
"Market is likely to wait for a catalyst for additional upside, whereas the downside does appear to be capped by the limited participation from money managers," a commodity strategist at TD Securities said.
Boston Federal Reserve President Susan Collins expressed confidence that current monetary policy will slow the economy sufficiently to bring inflation back to the Fed's 2% target.
Investors are now awaiting the University of Michigan's consumer sentiment reading on Friday and comments from several Fed officials this week. Also, U.S. consumer price index data will be released on May 15.
Recent weak U.S. jobs data has led money markets to price in two Fed rate cuts this year and around 40 basis points of monetary easing.
Last week, gold prices witnessed the second consecutive weekly decline, settling just above the $2,300 threshold after recent market volatility stemming from the Federal’s midweek policy announcement and the U.S. employment report.
Bullion’s decline surprised traders who had anticipated a stronger rally amid falling U.S. bond yields, especially after Fed Chair Jerome Powell signaled a likely rate cut despite lingering inflation concerns. His dovish stance lifted market optimism, pushing risk assets at the expense of safe-haven investments.
XAU/USD price outlook
Economic uncertainty, potential Fed easing, and a weakening U.S. dollar should theoretically support precious metals, yet gold's recent rally and disconnection from fundamentals could mean prices remain stagnant or deflate further.
While the U.S. economic calendar appears relatively quiet in the coming week, this may change with the release of the April inflation data on May 15, potentially sparking market volatility. Any surprises could impact sentiment and lead to sharp price shifts.
Following a weak performance last week, gold hit its lowest level in nearly a month but remained above $2,280.
According to a DailyFX analyst, bulls must defend this support to avoid a decline to the key Fibonacci level of $2,260. Further losses could pull XAU/USD prices toward the 50-day simple moving average at $2,235.
On the upside, a bullish turnaround would face initial resistance at $2,325, followed by $2,355. Clearing this territory could open a path toward $2,375 for XAU/USD, marked by a short-term descending trendline from the record high.