- Gold stumbles after peaking at $2,391 amid revived risk appetite.
- Mixed US jobs data fuel speculation of an imminent Federal Reserve rate cut.
- China’s PBoC halts Gold purchases, impacting bullion prices alongside falling Treasury yields.
The Gold price made a U-turn on Monday, trimming some of last Friday’s gains and tanking more than 1% as risk appetite returned. US equities posted gains, while US Treasury bond yields edged lower. The XAU/USD trades at $2,358 after hitting a daily high of $2,391.
Last week’s US NFP report was mixed. June figures exceeded estimates, but April’s and May’s downward revisions hinted that the US jobs market is cooling sharply. Consequently, the US Unemployment Rate ticked higher, spurring speculation that the Federal Reserve (Fed) could slash interest rates sooner than expected.
Bullion prices were also hurt by the People Bank of China’s (PBoC) decision not to buy Gold in June, as in May. China held 72.80 million troy ounces of the precious metal at the end of June.
The US 10-year Treasury bond yield fell almost two basis points to 4.27%, reflecting that market players expect the Fed to lower borrowing costs amid the chances of hurting the labor market.
According to data from the CME FedWatch Tool, investors are pricing in 73% odds of a Fed rate cut in September, up from 71% last Friday.
The US economic docket will feature Fed Chairman Jerome Powell’s semi-annual Congressional Testimony and the release of inflation figures on the consumer and producer sides. Initial Jobless Claims and the University of Michigan Consumer Sentiment will also complement the schedule.
Daily digest market movers: Gold price slumps ahead of Fed’s Powell speech
- US CPI is expected to decrease from 3.3% to 3.1% YoY in June, while core inflation is projected to remain steady at 3.4% YoY.
- According to the consensus, Initial Jobless Claims for the week ending July 6 are expected to increase from 238K to 240K.
- July Consumer Sentiment is set to improve to 68.5, up from 68.2 in June, according to the consensus.
- Federal Open Market Committee (FOMC) June Meeting Minutes showed that most participants estimated that the current policy is restrictive but had opened the door for rate increases. Policymakers acknowledged the economy is cooling and could react to unexpected economic weakness.
- December 2024 fed funds rate futures contract implies that the Fed will ease policy by 39 basis points (bps) toward the end of the year.
Technical analysis: Gold price retreats below Head-and-Shoulders neckline
Gold price has retreated after decisively breaking the Head-and-Shoulders neckline, which witnessed the XAU/USD price travel to $2,392 before slumping toward $2,357, the current exchange rate, opening the door for a consolidation.
Momentum shows buyers are losing steam, with the Relative Strength Index (RSI) decelerating toward the 50-neutral line, which, if crossed, will hint that sellers are moving in.
If XAU/USD drops 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.
On the other hand, if Gold prices climb above $2,400, further upside is seen, with the next resistance lying at the YTD high of $2,450, ahead of the $2,500 mark.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
