XAU/USD holds gains following Fed’s Beige Book

• XAU/USD jumped above the 100-day SMA to $1,958
• Fed’s Beige books stated that overall economic activity increased slightly since late May.
• Soft inflation figure weight on the USD as it made Treasury yields decline.

On Wednesday, the Gold spot XAU/USD gained more than 1% and jumped to a daily high of $1,958. In that sense, the yellow metal gained ground following the report of soft inflation figures from the US, which fueled a decline in US yields. In the meantime, the DXY index stands at its lowest level since April 2022, and the Federal Reserve Beige Book report failed to trigger a recovery.

According to the US Bureau of Labor Statistics, the US Consumer Price Index (CPI) fell to 3% year-on-year in June, slightly lower than the expected 3.1% and down from the previous figure of 4%. The Core inflation also decreased to 4.8% year-on-year, below the anticipated 5% from the previous 5.3%. Consequently, US Treasury yields experienced significant declines across the board. The 2-year yield dropped to 4.74%, the 5-year yield fell to 4.07%, and the 10-year yield dived to 3.86% all three seeing more than 2% declines on the day.

Despite falling yields, investors continue to bet on a 25 basis points hike in the next July meeting, according to the CME FedWatch tool. That said, investors shouldn’t take off the table another hike for the rest of 2023 as Jerome Powell and several Federal Reserve (Fed) officials hinted that “multiple hikes” may be appropriate.

In addition, the Federal Reserve’s Beige Book revealed that the overall economic activity in the US has seen a slight increase since late May. The report also indicated that consumer spending had shown mixed results, with growth primarily observed in consumer services. However, following the report’s release, its impact on the USD was limited as it continues to show weakness agains most of its rivals.

XAU/USD Levels to watch

After piercing through the 100-day Simple Moving Average, the XAU/USD confirms a bullish outlook for the short term, as it now trades above the 20, 100 and 200-day SMAs. In addition, indicators show strength with the Relative Strength Index (RSI) pointing north above its midline while the Moving Average Convergence Divergence (MACD) prints higher green bars.

Resistance levels: $1,970, $1,980, $2,000.

Support levels: 1,950 (100-day SMA), $1,930 (20-day SMA), $1,915.

XAU/USD Daily chart