- Gold trims some of last week’s losses, posting gains of over 0.50% despite USD strength.
- US Nonfarm Payrolls report shows resilient labor market with 272,000 jobs added.
- Upcoming US inflation data and Fed decisions will likely impact Gold’s future trajectory.
Gold posted solid gains on Monday, rising more than 0.50% as US Treasury yields rose. Although the yellow metal traded above last week’s low of $2,277, it is on the defensive amid broad US Dollar strength ahead of the release of crucial US economic data. at $2,311 at the time of writing.
Last week’s US Nonfarm Payrolls for May showed the labor market remains resilient even though earlier reports showed it was cooling. However, 272,000 jobs were created, more than the estimated 185,000. In the same report, the unemployment rate increased, while average hourly earnings increased slightly.
Given the context, this week’s US inflation report would be crucial. Most analysts estimate that inflation will remain at familiar levels, which could reaffirm the Federal Reserve’s (Fed) rhetoric of keeping interest rates “higher for longer.” On the other hand, a re-acceleration could lead Fed officials to adjust their rhetoric, which could pave the way for further losses for the non-yielding metal.
After the US inflation data is released, the Fed will announce its monetary policy decision and update the Summary of Economic Projections (SEP). Any hawkish slant in the message or dot chart could trigger volatility among market participants.
Meanwhile, the 10-year US Treasury yield rises three and a half basis points to 4.47%, a headwind for the yellow metal. Consequently, the DXY, an index of the US dollar against six other currencies, rose 0.23% to 105.17.
Daily movements and market drivers: The price of Gold recovers after a strong employment report in the US.
- News that the People’s Bank of China paused its 18-month bullion buying streak weighed on the precious metal. “The PBOC’s holdings of the precious metal remained stable at 72.80 million troy ounces for May,” according to MarketWatch.
- The upcoming US CPI report for May is expected to show headline inflation at 3.4% annually, while core CPI is forecast to decline from 3.6% to 3.5% annually.
- Last week, U.S. jobs data sparked speculation that the Fed will keep rates higher for longer.
- Last week’s US data decreased the odds of a Fed rate cut in September, according to the CME FedWatch tool, from more than 50% to 46.7%.
- The December 2024 federal funds futures contract suggests investors expect 28 basis point rate cuts from the Fed over the course of the year.
Technical analysis: Gold price rises, remains around $2,310
Gold price consolidates above $2,300, although a head-shoulder chart pattern has emerged. Momentum changed to bearish as shown by the RSI, which has broken below the 50 midline, an indication that sellers are in control.
Therefore, further weakness in Gold and sellers could push the spot price below $2,300. Once cleared, the next target would be the May 3 low of $2,277, followed by the March 21 high of $2,222. More losses lie below with the buyers’ next line of defense around the $2,200 figure.
On the other hand, if Gold buyers push prices above $2,350, look for consolidation in the $2,350-$2,380 area.
Gold
Gold has played a fundamental role in human history, as it has been widely used as a store of value and medium of exchange. Today, apart from its brilliance 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, since it does not depend on any specific 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 purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons 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 since records exist. Central banks in emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, 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 fear 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 moves depend on how the US Dollar (USD) performs, as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.
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.
