Gold Prices Plunge Below $2,380/oz Amid Hawkish Fed Minutes
On Thursday, spot gold prices dropped over $40, falling below $2,380 per ounce. The decline was driven by hawkish comments in the Federal Open Market Committee (FOMC) minutes, which strengthened the US dollar and undermined the gold price trend.
FXStreet analyst Christian Borjon Valencia noted that the FOMC minutes dampened hopes for a rate cut, leading to the significant drop in gold prices. Prior to the release of the minutes, gold prices were already trending downward due to higher US bond yields and profit-taking by investors. The hawkish tone of the minutes accelerated the decline, with spot gold reaching a low of $2,374.90 per ounce.
Spot gold closed Wednesday's session down $42.10, or 1.74%, at $2,378.57 per ounce. The price fell below the $2,400/oz mark as traders took profits ahead of the FOMC minutes release. Weakness in the US real estate market also contributed to the decline. The National Association of Realtors (NAR) reported a 1.9% drop in US sales of used homes in April, contrary to market expectations of a slight increase.
The Fed minutes from the April 30 to May 1 monetary policy meeting revealed growing concerns about inflation among officials, who lacked confidence in pushing forward with interest rate cuts. The minutes highlighted that many officials viewed Fed monetary policy as restrictive, with uncertainty about its impact on the economy. Policymakers agreed that recent inflation data and strong economic momentum suggested it would take longer to be confident that inflation is returning to the 2 percent target. Some participants expressed willingness to tighten policy further if necessary.
Goldman Sachs CEO David Solomon echoed the hawkish sentiment, stating he does not expect the Fed to cut rates this year due to the economy's resilience.
Rising US bond yields also pressured gold prices. Valencia pointed out that stronger-than-expected inflation data from the UK contributed to the rise in US Treasury yields. The UK's Consumer Price Index (CPI) rose by 2.3% year-on-year in April, higher than the expected 2.1% increase. This prompted traders to adjust their expectations for the Bank of England's interest rate policy, further influencing US bond yields and the dollar.
On Wednesday, US 10-year Treasury yields increased by 2 basis points to 4.434%, while the US dollar index rose 0.29% to 104.95, both working against gold.
Trading Outlook
Despite the recent pullback, Valencia maintains that the uptrend in gold prices remains intact. However, the current momentum is turning negative, with the Relative Strength Index (RSI) aiming lower and buying pressure waning. Valencia identified the first support level for gold at the May 13 low of $2,332/oz, followed by the May 8 low of $2,303/oz. Below these levels, the 50-day simple moving average (SMA) at $2,284/oz would be the next bearish target.
Conversely, if buyers push the gold price above $2,400/oz, it could test the year-to-date high of $2,450/oz again.
