• Gold price jumps over 1% on Friday on renewed US debt concerns. 
  • Markets are at unease that US President Trump’s spending bill will add even more to US debt. 
  • Gold sees a weekly gain of around 4%, fully recovering from the previous week’s fall. 

Gold (XAU/USD) price extends its weekly gains, trading near $3,329 at the time of writing on Friday, up nearly 1% on the day, on a new tailwind for the safe haven precious metal. The spending bill from United States (US) President Donald Trump passed through the House of Representatives on Thursday and is now on its way to the Senate. Traders are worried that the spending bill will only add more US debt, while income from tariffs remains to be seen as enough to provide funding for all the spending.

The best place to track these concerns is the US 30-year benchmark rate. Yields in that maturity rallied to 5.15% on Thursday from 4.64% at the start of May, a more than one-year high since the 5.18% seen at the end of December 2023. Adding all things up, the recent downgrade on US credit rating from agency Moody’s, and now this spending bill, which adds $3.8 billion to the US debt, traders and market participants demand a higher premium or return before considering buying US debt bonds, which pushes US yields higher, the Economic Times reports. 

Daily digest market movers: China gold rush picks up again

  • Yields on 10-year US Treasuries have pushed higher this week, topping 4.5%. In earlier years, such a move would have been a major headwind for Gold as it doesn’t pay interest, with bullion prices and yields typically moving inversely. That correlation has now weakened, Bloomberg reports.
  • “Gold is likely to remain range-bound in the near term,” said Justin Lin, an analyst at Global X ETFs. “However, ongoing geopolitical tensions and increasing concerns about the US fiscal outlook continue to provide underlying support”, Bloomberg reports. 
  • China’s onshore, gold-backed Exchange Traded Funds (ETFs) saw inflows resume as prices rebounded, according to a report by China Securities Journal. Some 20 Gold ETFs listed on Chinese bourses received inflows of about 370m Yuan on May 21, the report said, Bloomberg reports. 
  • If output doubles as planned, Ghana expects to rake in $12 billion a year from small-scale Gold production. Gold exports from Ghana have surged as international prices have soared, and much of that expansion is down to small mines and artisanal production. This year, the government set up a regulator to handle all Gold buying and selling, hoping to boost foreign-currency reserves and curb black-market trading, Reuters reports. 

Gold Price Technical Analysis: Holding at these levels

The US debt market is entering wild waters from here on out. The ballooning debt, along with uncertainty on the income of tariffs and other measures lagging to fund the spending bill, makes the US debt a heavy weight for markets to bear. This translates into a higher yield demanded for investors to be convinced to buy the issued debt, creating uncertainty that sends Gold higher and might see more room to go. 

On the upside, the R1 resistance at $3,333 is the first level to look out for as it already looks toppish in the European trading session for now. The R2 resistance at $3,372 follows not far behind and could open the door for a return to the $3,400 round level and potentially further course to new all-time highs. 

On the other side, some thick-layered support emerges in case the Gold price declines. On the downside, the daily Pivot Point comes in at $3,306, safeguarding the $3,300 big figure. Some intermediary support could come from the S1 support at $3,267. Further below, there is a technical pivotal level at $3,245, roughly converging with the S2 support at $3,240. 

XAU/USD: Daily Chart

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

Source: Fxstreet