Gold price holds steady near two-week top, looks to US NFP for fresh impetus
- Gold price enters a bullish consolidation phase near a two-week high touched on Thursday.
- Traders prefer to wait for the US NFP report before positioning for the near-term trajectory.
- Fed rate cut bets are keeping the US bond yields and the USD depressed, lending some support.
Gold price (XAU/USD) is seen oscillating in a narrow trading range during the Asian session on Friday and consolidating its gains to a two-week high registered over the past two days. Investors now opt to move to the sidelines and wait for the release of the closely-watched monthly employment details from the United States (US). The popularly known Nonfarm Payrolls (NFP) report will play a key role in influencing the Federal Reserve’s (Fed) future policy decisions, which, in turn, should provide a fresh impetus to the non-yielding yellow metal.
Heading into the key data risk, rising bets for an imminent interest rate cut by the Fed in September, bolstered by the incoming softer US macro data, might continue to act as a tailwind for the Gold price. Furthermore, dovish Fed expectations keep the US Treasury bond yields and the US Dollar (USD) depressed near a multi-week low, which should further contribute to limiting the downside for the commodity. Apart from this, geopolitical tensions stemming from conflicts in the Middle East suggest that the path of least resistance for the XAU/USD is to the upside.
Daily Digest Market Movers: Gold price bulls turn cautious ahead of the crucial US jobs report
- Growing acceptance that the Federal Reserve will start cutting interest rates later this year amid signs of a slowdown in the US economy continues to lend some support to the non-yielding Gold price.
- The US Department of Labor (DoL) reported on Thursday that the number of Americans applying for unemployment insurance benefits increased more than expected by 229K in the week ending June 1.
- This, along with Wednesday’s ADP report on private-sector employment, suggests that the US labor market is cooling, cementing bets for a September Fed rate cut and weighing on the US Treasury bond yields.
- The yield on the benchmark 10-year US government bond languishes near its lowest level in two months, which, in turn, is seen undermining the US Dollar and acting as a tailwind for the yellow metal.
- The underlying strong bullish sentiment across the global equity markets might hold back traders from positioning for any further gains ahead of the release of the crucial US monthly employment details.
- The popularly known Nonfarm Payrolls (NFP) report is expected to show that the US economy added 185K jobs in May as compared to 175K previous and the unemployment rate held steady at 3.9%.
- Apart from this, Average Hourly Earnings will influence the inflation trajectory and the Fed’s future policy decision, which, in turn, will help in determining the next leg of a directional move for the XAU/USD.
Technical Analysis: Gold price is likely to confront stiff resistance near the $2,400 round-figure mark
From a technical perspective, Thursday’s sustained move beyond the $2,364 area, or last week’s swing high, was seen as a fresh trigger for bullish traders. That said, mixed oscillators on the daily chart warrant some caution before positioning for any further gains. Hence, any subsequent move up is more likely to confront stiff resistance and remain capped near the $2,400 mark. Some follow-through buying, however, has the potential to lift the Gold price to the next relevant hurdle near the $2,425 zone en route to the $2,450 region, or the all-time peak touched in May.
On the flip side, the $2,060 horizontal zone now seems to protect the immediate downside. Any further decline might be seen as a buying opportunity around the $2,340 region. This should help limit the downside for the Gold price near the $2,315-2,314 area or the multi-week low touched on Tuesday. A convincing break below, however, will confirm a breakdown through the 50-day Simple Moving Average (SMA) and pave the way for deeper losses. The XAU/USD might then weaken further below the $2,300 round-figure mark and test the $2,280 support zone.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling 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 Gold price, 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 fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.