Gold prices experienced a significant drop this week, falling over 3% and settling just below the $2,335 mark after briefly reaching an all-time high on Monday. The selloff was attributed to the rally in short-term Treasury yields following hawkish Federal Reserve minutes and better-than-expected US Purchasing Managers' Index (PMI) data for the services sector in May.

The uptick in Treasury yields and the positive PMI data signaled that business activity in the services sector is accelerating at its strongest pace in over two years, indicating that the US economy is resilient and can withstand higher interest rates. This resulted in a reduced likelihood of further central bank easing and provided room for Treasury yields, particularly in the front end of the curve, to potentially rise in the near term.

As a consequence, the US dollar is expected to maintain an upward bias, preventing gold from making another attempt at reaching fresh records by the end of the month. Inflationary pressures have proven to be stickier than initially anticipated, and with the prospects of central bank easing diminishing, yields and the greenback are likely to remain strong, creating a challenging environment for precious metals.

The upcoming release of core personal consumption expenditures (PCE) price data, which is the Federal Reserve's preferred inflation measure, will play a crucial role in determining gold's future course. If the PCE report surprises to the downside, it could reignite optimism that the disinflationary trend, which had stalled earlier this year, is back on track. This would strengthen the argument for the Federal Reserve to start dialing back on policy restraint as early as this fall.

However, if US inflation numbers exceed expectations, interest rate expectations are likely to shift, potentially pushing the first rate cut timeline further into November or December. This could further boost yields and the US dollar, making non-interest-bearing assets like gold less appealing and increasing their cost for overseas buyers.

From a technical perspective, gold experienced a bearish trend this week, breaking below a key trendline at $2,360 and the 38.2% Fibonacci retracement level from the 2024 advance at $2,335. With bearish momentum gaining strength, sellers may target the 50-day simple moving average at $2,310. In case of further weakness, attention will be on the psychological support level at $2,300, followed by May's swing low at $2,280.

On the upside, if there is a market rebound, resistance could be encountered near the $2,375 zone. Surpassing this technical barrier may prove challenging, but a breakout could potentially stimulate buying interest and prompt a move towards $2,420. Continued gains beyond this point could set the stage for a rally towards $2,430, with the all-time high at $2,450 being the next significant bullish target to monitor.

Investors are urged to exercise caution and carefully consider their trading decisions. Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. It is recommended to seek independent advice and fully understand the risks involved before engaging in trading.

Please note that this article is for informational purposes only and should not be interpreted as financial advice or a solicitation to trade derivatives contracts or securities. Examples provided are solely for illustrative purposes, and there is no guarantee that individuals will achieve similar profits or losses.