- Gold prices rise 0.15% amid low trading volume on US Independence Day
- XAU/USD hit a two-week high of $2,365 on Wednesday, boosted by weak US jobs data and increased expectations of Fed rate cuts.
- Traders are focusing on Friday’s Nonfarm Payrolls report, following the U.S. holiday closure.
Gold prices are posting minimal gains on Thursday amid low liquidity conditions during the North American session as American traders are away from their desks in observance of Independence Day. Recent US economic data raised expectations that the Fed could begin easing policy sooner than expected, although policymakers remain vigilant and want to see how the disinflation process evolves.
XAU/USD is trading at $2,356, up 0.15% after hitting a two-week high of $2,365 on Wednesday.
Bullion rose more than 1% on Wednesday on weaker-than-expected employment reports, led by last week’s initial jobless claims and ADP data showing private hiring deteriorated in June compared with May. In addition, business activity in the services sector fell into contraction territory as measured by the ISM services PMI.
Meanwhile, the Federal Open Market Committee (FOMC) released the minutes of its June meeting, which showed that most participants viewed current policy as restrictive but opened the door to rate increases. Policymakers acknowledged that the economy is cooling and could react to unexpected economic weakness.
Traders’ attention is focused on Friday’s Nonfarm Payrolls (NFP) report as US markets remain closed for the Independence Day holiday.
Daily Market Wrap: Gold Price Holds Firm Above $2,350
- Earlier in the week, Fed Chairman Jerome Powell commented that the disinflation process has resumed but stressed the need for more progress before considering any interest rate cuts. He added, “Because the U.S. economy is strong and the labor market is strong, we can take our time and get it right.”
- On Friday, the U.S. Nonfarm Payrolls report for June is expected to show the economy added 190,000 jobs to the labor force, down from 272,000 in May.
- The unemployment rate is expected to remain unchanged at 4% compared to previous readings, while Average Hourly Earnings (AHE) are projected to decelerate from 4.1% to 3.9% annually.
- According to the CME FedWatch tool, the odds of a 25-basis-point Fed rate cut in September are 66%, up from 63% on Tuesday.
- The December 2024 federal funds rate futures contract implies the Fed will ease policy by just 38 basis points (bps) by the end of the year.
Technical Analysis: Gold Price Fluctuates Near the Neckline of the Head and Shoulders Pattern
Gold prices are consolidating on Thursday due to low volumes in financial markets. Although the yellow metal remains bullish, the head-and-shoulders chart pattern is in play, which began its formation in April 2024.
From a price action perspective, XAU/USD shows a short-term bearish bias, but the overall uptrend remains intact, supported by a bullish RSI.
If gold price breaks above the neckline of the pattern, it could rally to $2,400, invalidating the head-and-shoulders chart formation and potentially leading to further gains towards the year-to-date high of $2,450.
On the other hand, if the sellers sink the spot price below $2,350, further declines could target the $2,300 level. If this support fails, the next demand zone would be the May 3 low of $2,277, followed by the March 21 high of $2,222.
Gold
Gold has played a pivotal role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from its luster and use for jewelry, the precious metal is considered a safe haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy gold to improve the perception of the strength of the economy and the currency. High gold reserves can be a source of confidence in a country’s solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase on record. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasury bonds, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
The price of Gold can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the movements depend on how the US Dollar (USD) performs, as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep Gold prices in check, while a weaker Dollar is likely to push Gold prices higher.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
