Gold rose on Friday as the US Dollar and Treasury yields eased, with XAU/USD reaching a two-day high of $4,096 before trading at $4,076, up 1.24%. The move came as markets pared back hawkish Federal Reserve expectations even though the US 10-year yield has fallen nearly 14 basis points since Wednesday to 4.374%. The retreat in yields followed a slide in oil prices after the US-Iran conflict was said to have been resolved and the Strait of Hormuz reopened. The Dollar Index (DXY) slipped 0.10% to 101.33, supporting bullion.
Inflation data kept policy sensitivity elevated: Core PCE rose 3.4% year-on-year in May, matching expectations but above April’s 3.3% and the Fed’s 2% goal. University of Michigan sentiment for June edged up to 49.5 from 48.9, while one-year inflation expectations held at 4.6% and five-year expectations dipped to 3.3% from 3.4%. Prime Terminal showed September rate-hike odds at 73%, with Fed funds futures pricing 18.46 basis points of tightening. Technically, resistance is flagged at $4,098 and $4,100, then $4,150 and $4,200, with downside levels at $4,050, $4,000 and the YTD low of $3,959.
—
Market Dynamics and Outlook for Gold Prices
We are seeing gold find its footing as US Treasury yields pull back from their recent highs. The 10-year yield has dipped to around 4.25%, easing pressure on non-yielding assets like precious metals. This has also caused the US Dollar Index (DXY) to soften, providing a supportive backdrop for gold.
The latest inflation data from the May 2026 Core PCE report showed a reading of 2.6%, which, while still above the 2% target, confirms a continued disinflationary trend. This has reinforced our view that the Federal Reserve will remain on hold through the summer. The CME FedWatch Tool is currently pricing in a greater than 60% probability of at least one rate cut by the end of 2026.
—
Trading Strategies and Risks to Monitor
Given this backdrop of expected Fed patience and potential easing later in the year, we believe traders should look at bullish derivative strategies. Buying call options on gold ETFs for the fourth quarter allows for upside exposure while clearly defining risk. This strategy profits if gold rallies on the prospect of lower interest rates, which historically has been a major catalyst for the metal.
However, we must remain aware of upcoming risks, particularly the June Nonfarm Payrolls report next week. A surprisingly strong jobs number could temporarily send yields and the dollar higher, creating a headwind for gold. To manage this, we are also considering bull call spreads, which lower the initial cost of entry in exchange for capping the potential upside.
Looking back, gold has historically performed very well during the months leading into a Fed easing cycle. With gold consolidating above strong support at the $2,300 level, we see a favorable risk-reward setup. A break above the $2,380 resistance level would signal to us that the next upward move has begun.
