Gold Bounces off Critical Support Area

Gold prices edged higher on Friday, bouncing from a two-month low struck the previous day amid optimism US lawmakers will reach a debt-ceiling agreement before the June 1 deadline.

At the time of writing, spot gold, XAU/USD, is trading at the $1,947/oz zone, up 0.34% on the day, after bottoming out at the $1,936 area on Thursday.

New-born optimism that US lawmakers will secure a debt-ceiling deal before triggering a catastrophic default has weighed on the dollar, supporting a recovery of the yellow metal despite higher-than-expected US inflation figures.

On Friday, data showed the US Personal Consumption Expenditures (PCE) price index, the Federal Reserve's preferred inflation gauge, came in hotter than anticipated. The Core PCE price index rose by 0.4% in April while the annual increase was 4.7%, stubbornly higher than the central bank's 2% target.

The CME FeWatch Tool now points to higher chances of a 25 basis point rate increase by the Fed on June 14, as coupled with higher-than-expected PCE inflation, the US first-quarter GDP growth was upwardly revised to 1.3% from 1.1% previously estimated. As a result, the probability of a 25 rate increase is now 58.5% from around 48.2% yesterday. Still, US Treasury yields are retreating on Friday, with the 10-year note at 3.81%.



From a technical perspective, the XAU/USD pair holds a negative short-term bias, according to indicators on the daily chart. However, the bounce from the 100-day simple moving average (SMA) at $1,935 can be considered constructive in the medium term. 

On the weekly chart, the perspective remains positive despite the precious metal striking the third consecutive weekly loss. Still, the XAU/USD has managed to hold above the 20-week SMA at around $1,938. A break below this level could deteriorate the medium-term perspective, exposing the $1,900 area.

On the other hand, critical short-term resistance is seen in the $1,990-$2,010 range. The metal would need to consolidate above this area to re-shift focus to record highs at $2,075.