Linh Tran
Gold ended yesterday’s trading session with a decline of nearly 0.6%, mainly due to short-term profit-taking pressure following a three-session winning streak since the end of last week. This is viewed as a technical correction rather than a trend reversal, as the underlying fundamental drivers for gold remain largely unchanged.
The downside pressure in yesterday’s session was primarily driven by a mild rebound in the US dollar and Treasury yields, following a series of stronger-than-expected US economic data releases. The key highlight was the preliminary PMI figures for May — a measure of business activity — which showed notable improvement in both the manufacturing and services sectors.
Specifically, the Manufacturing PMI jumped to 52.3, significantly beating the forecast of 49.9 and well above last month’s reading of 50.2. Meanwhile, the Services PMI also came in at 52.3, compared to the expected 51.0. These numbers suggest that the US economy is still maintaining solid expansion momentum, despite high interest rates and ongoing global geopolitical uncertainty.
Currently, market sentiment leans toward a “soft landing” scenario for the US economy. As a result, investors may be rebalancing their defensive positions, triggering profit-taking in gold after a strong three-day rally. However, gold’s pullback remains contained within technical boundaries, reflecting that the selling pressure is temporary rather than a signal of trend reversal.
At present, gold’s short-term uptrend remains relatively intact, having rebounded from the recent low around $3,121/oz last Thursday. The recovery in recent sessions has been largely supported by sustained weakness in the US dollar.
Although the US Dollar Index (DXY) saw a modest rebound yesterday following the positive economic data, it continues to hover near its lowest level in several weeks. This indicates that the USD remains under medium-term pressure, especially as markets begin to price in the possibility that the Federal Reserve may maintain a more dovish stance — or even shift toward easing — if inflation continues to cool.
This broad-based dollar weakness is acting as a near-term support for gold, helping to limit deeper downside moves even when the market temporarily reacts to upbeat economic figures.
Additionally, geopolitical uncertainties remain elevated. Peace talks between Russia and Ukraine have yet to make meaningful progress, while the potential spillover of conflict into the Middle East continues to support investor demand for safe-haven assets, keeping gold prices stable around the $3,300/oz mark.
Looking ahead to next week, the market will closely monitor incoming economic and geopolitical developments that may guide gold’s next move. If there are no major shifts in monetary policy or geopolitical risk, gold’s short-term uptrend remains well-supported. Conversely, stronger-than-expected data that reshapes interest rate expectations or a breakthrough in peace negotiations could create downside pressure for gold.
Tran is Market Analyst at XS.com
