What’s behind Gold’s May Day drop?

Gold fell from $1271 to $1254 on Monday even though the official data showed consumer spending was unchanged in March and a key inflation measure recorded its first monthly drop since 2001.

Fed still on track to raise rates in June - CME data

There is consensus in the market that a 25 basis point rate hike is on the cards in June as long as the employment growth rebounds in April and May, This is evident from the CME data, which shows the probability of a 25 bps move in June is 71.6%.

The central bank could hint at June rate hike in its policy statement tomorrow. The increased odds of the Fed rate hike could have weighed over the yellow metal on Monday.

Investors would also scan the policy statement tomorrow for clues regarding the timing of the Fed balance sheet reduction.

Gold Technical Level

Gold is trading flat lined around $1256/Oz this Tuesday morning. A break below the previous day’s low of $1254 could yield a sell-off to $1249.50 (50-DMA). A violation there would expose $1240 (Mar 31 low). On the other hand, a break above $1260 (Apr 26 low) could yield a re-test of $1271 (previous day’s high) and $1274 (Apr 19 low).