- Gold languishes near a multi-week low touched on Friday amid reduced Fed rate cut bets.
- The stronger US NFP report suggests that the Fed might delay starting its rate-cutting cycle.
- The focus shifts to the US consumer inflation figures and the FOMC decision on Wednesday.
Gold price (XAU/USD) enters a bearish consolidation phase and oscillates in a range near its lowest level in over a month, below the $2,300 mark touched in the aftermath of blowout US monthly jobs data on Friday. The popularly known Nonfarm Payrolls (NFP) report showed that the world’s largest economy created a lot more jobs than expected in May, forcing investors to scale back their bets for a September interest rate cut by the Federal Reserve (Fed). This keeps the US Treasury bond yields elevated and lifts the US Dollar (USD) to a nearly one-month high, which, in turn, is seen acting as a headwind for the non-yielding yellow metal.
Furthermore, reports that the People’s Bank of China (PBoC) paused gold purchases to its reserves in May, ending a massive buying spree that ran for 18 months, further seem to undermine the Gold price. That said, a cautious market mood lends some support to the safe-haven XAU/USD and helps limit deeper losses. Traders also seem reluctant to place aggressive directional bets ahead of this week’s key US data and central bank event risk – the release of the latest US consumer inflation figures and the outcome of the two-day FOMC policy meeting on Wednesday. This, in turn, warrants caution before positioning for further losses.
Daily Digest Market Movers: Gold price struggles to lure buyers amid reduced Fed rate cut bets, bullish USD
- The upbeat US employment details released on Friday fueled speculations that the Federal Reserve could delay the start of the rate-cutting cycle, which, in turn, is seen capping the upside for the non-yielding Gold price.
- The headline NFP showed that the US economy added 272K jobs in May as compared to the 185K anticipated and the previous month’s upwardly revised 175K, overshadowing an uptick in the unemployment rate to 4.0%.
- Furthermore, Average Hourly Earnings surpassed consensus estimates and increased by 4.1% during the 12 months through May, which might push up prices and require the Fed to keep interest rates higher for longer.
- The yield on the benchmark 10-year US government bond jumped to 4.45% after the data, while the rate-sensitive 2-year yield remains close to 5.0%, underpinning the US Dollar and acting as a headwind for the XAU/USD.
- Meanwhile, the People’s Bank of China (PBoC) snapped 18 months of continuous Gold buying in May, raising concern about decreasing demand for the bullion in one of the world’s biggest buyers and favoring bearish traders.
- Investors, however, prefer to wait on the sidelines ahead of this week’s release of the latest US consumer inflation figures and the highly-anticipated FOMC monetary policy decision on Wednesday before placing directional bets.
- The chances of a rate cut in September fell to around 50% following the US jobs data, from around 70% on Thursday, and the markets are now pricing in just one cut of 25 basis points this year, either in November or December.
- Hence, investors will look for fresh signals on when the Fed will begin cutting interest rates amid the still resilient US economy, which will play a key role in determining the next leg of a directional move for the commodity.
Technical Analysis: Gold price bears have the upper hand below 50-day SMA support breakpoint and the $2,300 mark
From a technical perspective, Friday’s close below the 50-day Simple Moving Average (SMA) and a subsequent breakdown through the $2,300 mark could be seen as a fresh trigger for bearish traders. Moreover, oscillators on the daily chart have been gaining negative traction and suggest that the path of least resistance for the Gold price is to the downside. Some follow-through selling below the $2,285 horizontal support will reaffirm the bearish outlook and expose the next relevant support near the $2,254-2,253 region. The downward trajectory could extend further towards the $2,225-2,220 area en route to the $2,200 round figure.
On the flip side, any attempted recovery might now confront stiff resistance near the $2,325 horizontal zone ahead of the 50-day SMA support breakpoint, currently pegged near the $2,343-2,344 region. This is followed by the $2,360-2,362 supply zone, which if cleared decisively should allow the Gold price to retest last week’s swing high, around the $2,387-2,388 area and reclaim the $2,400 mark. A sustained strength beyond the latter will negate any near-term negative bias and pave the way for some meaningful near-term appreciating move.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Euro.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.23% | 0.10% | 0.06% | -0.15% | 0.14% | -0.02% | 0.10% | |
| EUR | -0.23% | -0.12% | -0.17% | -0.36% | -0.09% | -0.25% | -0.14% | |
| GBP | -0.11% | 0.11% | -0.04% | -0.24% | 0.04% | -0.14% | 0.00% | |
| CAD | -0.06% | 0.16% | 0.04% | -0.21% | 0.08% | -0.08% | 0.02% | |
| AUD | 0.18% | 0.41% | 0.27% | 0.22% | 0.29% | 0.14% | 0.24% | |
| JPY | -0.13% | 0.12% | -0.04% | -0.08% | -0.30% | -0.14% | -0.03% | |
| NZD | 0.03% | 0.23% | 0.11% | 0.08% | -0.13% | 0.16% | 0.11% | |
| CHF | -0.11% | 0.12% | -0.01% | -0.05% | -0.26% | 0.02% | -0.13% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
