- Gold reached a high of $2,310, but reversed its gains, unable to overcome the May 2 high of $2,326.
- US Non-Farm Payrolls missed expectations, causing real yields to decline and reducing gold's appeal as a safe haven.
- Federal Reserve officials are offering mixed signals, with Governor Bowman set to raise rates.
Gold erased its earlier gains on Friday after the US Bureau of Labor Statistics (BLS) showed that Nonfarm Payrolls for April disappointed estimates, representing a cooling of the labor market. Following the release, the gold metal approached its daily high of $2,310, but failed to surpass the May 2 high of $2,326, exacerbating a pullback to current XAU/USD prices.
XAU/USD is trading below $2,300, down 0.24%. Wall Street is optimistic, which weighs on the refuge appeal of the metal, which is not performing. Notably, US Treasury yields are falling, with the benchmark 10-year bond losing seven basis points. US real yields, which are inversely correlated with gold prices, fall six and a half points, from $2,219 to 2,146%.
A “stable and sustained” scenario in the US is on the horizon after the US NFP report, as the Institute for Supply Management (ISM) showed that business activity in the services sector contracted for the first time since December 2022.
Separately, a number of Federal Reserve officials have given statements. Fed Governor Michele Bowman was hawkish in an interview with Bloomberg Television, in which she stated that she is willing to raise rates if inflation stagnates or reverses. Recently, the Chicago Fed's Austan Goolsbee added that the latest US jobs report was strong, underscoring that current monetary policy is restrictive.
Daily Market Moves Summary: Gold Gives Up Around $2,300 Amid Falling US Yields US Dollar Offered
- Gold prices remain supported by falling US Treasury yields and the weakening US Dollar. US 10-year Treasury yields are yielding 4.506%, seven basis points lower than at the open. The US Dollar Index (DXY), which tracks the dollar against six other currencies, fell 0.29% to 105.04.
- Nonfarm Payrolls for April, released by the Labor Department, showed the economy added just 175,000 jobs, below forecasts of 240,000 and an upwardly revised 315,000 in March.
- Other data revealed that the unemployment rate increased slightly from 3.8% to 3.9%. Furthermore, average hourly earnings only grew by 0.2%, below the 0.3% forecast.
- The ISM services PMI for April fell below the critical mark of 50.0, which indicates contraction, with a reading of 49.4, lower than expected and lower than the March figure. A detailed examination of the report reveals a slowdown in the employment subcomponent, along with an increase in prices paid.
- Following the data release, the odds of a Fed rate cut increased, with traders expecting 38 basis points of rate cuts by the end of the year.
- The Federal Reserve's first rate cut is scheduled for September, with 87.30% odds for a 0.25% rate cut. The odds of another rate cut in December 2024 stand at 79.01%. This means that the federal funds rate would end the year in the range of 4.75% – 5.00%.
Technical analysis: Gold price falls but remains above $2,300
The price of Gold remains biased upwards, although during the week it has remained around the range of $2,280-$2,340. It must be said that the momentum continues to favor the resumption of the uptrend, as the RSI remains above the 50-point midline. However, downside risks remain if XAU/USD falls below $2,300.
If buyers hold the yellow metal above $2,300, the first resistance would be $2,330. Once passed, the next stop would be the April 26 high at $2,352, which could open the door to $2,400. The April 19 highs ($2,417) and all-time high ($2,431) offer bullish prospects.
Conversely, a bearish continuation is expected if Gold sellers drive prices below $2,300, exacerbating a pullback towards the April 23 daily low at $2,291. Further losses are expected, below the daily high of March 21, which became support at $2,223, followed by $2,200.
Frequently asked questions about Gold
Gold has played a key 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, as it is not dependent on any 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, 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 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. Being a non-yielding asset, Gold tends to rise with lower interest rates, while the higher cost of money usually weighs on the yellow metal. However, most of the movements depend on the behavior of the US Dollar (USD), 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.
