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Gold continues with a bearish tone due to the prospects for interest rates in the US.

  • Gold tumbles after retesting key resistance as outlook for US interest rates remains elevated.
  • This keeps the opportunity cost of holding non-yielding Gold high, making it less attractive to investors.

He Gold (XAU/USD) is trading a quarter of a percentage point lower on Tuesday after being rejected by key support-turned-resistance at $2,315 late Monday.

Expectations of higher US interest rates are weighing on the precious metal. The release of better-than-expected US employment data on Friday suggested continued inflationary pressures. This, in turn, makes it less likely that the US Federal Reserve (Fed) will cut interest rates in September, and maintaining higher interest rates increases the opportunity cost of holding non-yielding Gold, making it less attractive to investors.

Gold weakens after US jobs data alters interest rate outlook

The positive wage and employment picture painted by the US Non-Farm Payrolls (NFP) data suggested a reassessment of interest rate expectations in the US, with the Fed now expected to hold interest rates on hold. high interest rates for longer.

Market expectations that the Fed will cut interest rates in September fell to just over 50% after the NFP release, from 67% previously, according to the CME FedWatch tool, which bases its estimates on data from US 30-day federal funds futures prices. The current probability is around 54%.

That said, the outlook for global interest rates is more dovish, providing a supportive backdrop for Gold. The Bank of Canada (BoC) cut its overnight interest rate by 0.25% to 4.75% last week, as does the European Central Bank (ECB). The release of lower inflation data in Switzerland has sparked speculation that the Swiss National Bank (SNB) could also cut interest rates at its June 20 meeting after an initial cut in March.

Gold traders will now look for further clues on price direction in the Federal Reserve’s June meeting, which concludes on Wednesday, as well as the US Consumer Price Index (CPI) data for May which They will be published the same day.

Technical Analysis: Gold tests resistance again and collapses

Gold has pulled back to retest the range floor at $2,315, crashed and started to fall again. Gold is in a short-term downtrend, and since “the trend is your friend”, it will likely continue lower.

The next bearish target is around $2,285, the 100% extrapolation of the previous bearish move in May “a”. A stronger move lower could see Gold find support at $2,279 (late April-early May low).

XAU/USD 4-hour chart

On the other hand, a decisive break above the former range floor at $2,315 could suggest that the short-term downtrend is losing momentum and that more upside could be on the horizon.

Despite the short-term weakness, the precious metal’s medium- and long-term trends remain bullish, and the risk of a recovery remains high.

economic indicator

Non-farm payrolls

The most important result contained in the employment report is the monthly change in non-farm payrolls published by the US Department of Labor. The report publishes job creation estimates for the previous month and revisions to the data for the previous two months. Monthly changes in payrolls can be very volatile and the publication of this report generates high volatility in the dollar. A result above the market consensus is bullish for the dollar, while a result below expectations is bearish.

Why is it important for operators?

The monthly US employment report is considered the most important economic indicator for currency traders. Published on the first Friday following the reported month, the change in the number of employees is closely related to the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers the evolution of the labor market when setting its policies, which affects currencies. Despite several leading indicators shaping estimates, Non-Farm Payrolls tend to surprise markets and trigger substantial volatility. Actual numbers that beat consensus tend to be bullish for the USD.

Source: Fx Street

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