During Thursday’s trading day, gold rose against the US Dollar and 2-year Treasury yields. When Treasury yields and gold move along the same direction, the XAU/USD pair tends to gain the most confidence.
On June 17, the DXY Dollar Index dropped 1%, the most since last month. A thorough examination finds that market expectations for Federal Reserve rate hikes in the coming year have been reduced. Glancing at Federal Funds Futures, the implied yield of the generic 12th contract has dropped from 4% to 3.73%. The reduction in the 2-year Treasury yield could be due to this.
This came after some poor economic reports from the United States. In May, housing starts and permits increased by 1.55 million and 1.69 million, correspondingly, compared to 1.69 million and 1.77 million predicted. Preliminary unemployment claims also came in at 229,000, compared to a consensus of 217,500. Moreover, the likelihood of a recession in the United States within a year is increasing. According to Bloomberg, from a 20% likelihood reported earlier in the week, the chances have just been bumped up to 31.5%.
The economic calendar is seeming calmer as the week closes. On June 17, outside of the Bank of Japan, US industrial production is scheduled to be released at 13:15 GMT, where from 1.1 %, the rate has dropped to 0.4 % m/m.
A considerably lighter print might exacerbate the economy’s problems. Gold may benefit if markets price in rate hikes in a year’s time, but the larger fundamental outlook for XAU/USD remains bleak as central banks proceed to tighten policies everywhere.
Since XAU/USD appeared to find support around 1787 and 1810, gold has been consolidating. From March onwards, a downward trendline appears to have developed. Prices are approaching this downward trend. The 1869–1879 range appears to indicate strong resistance. A breach beyond those limitations could be the catalyst for gold’s next big rise. Until then, the path ahead could be bumpy.