Gold rises sharply to six-week high on dismal US labor market data
- Gold jumped over 1% to $2,385, boosted by mixed US NFP data and increased speculation of a Fed rate cut.
- June’s NFP beats forecasts, but revisions for April and May point to an accelerating cooling of the labor market.
- US Dollar Index (DXY) down 0.16% to 104.95; The 10-year Treasury yield fell more than six basis points to 4.284%.
The price of gold rose during the North American mid-session after the release of the June US non-farm payrolls (NFP) report, which beat forecasts, but downward revisions from the previous two months hinted that the labor market is cooling faster than the numbers show. Therefore, traders are betting that the Federal Reserve (Fed) will cut rates in September, raising a headwind for the greenback and a tailwind for the yellow metal.
XAU/USD is trading at $2,391 and is recording gains of over 1.40% on the day and more than 2.70% on the week after rebounding from daily lows of $2,349, sponsored in part by a weaker US dollar, which remains hurt by lower US Treasuries. yields.
The US Dollar Index ( DX ) is losing 0.16%, down to 104.95, while the benchmark US 10-year yield is down more than six basis points (bps) at 4.284%.
US NFPs for June were positive, but data from April and May were revised down, suggesting the economy added 111,000 fewer jobs than reported in those two months. Consequently, the unemployment rate rose by a tenth in June, above consensus.
Other data from the US Bureau of Labor Statistics (BLS) revealed that Average Hourly Earnings (AHE) remained unchanged but fell annually.
In addition, geopolitics continued to play an important role in the path of the gold metal. Israeli Prime Minister Benjamin Netanyahu sent a delegation to continue hostage negotiations and reiterated that the war will not end until Israel achieves all its objectives. Meanwhile, a Hamas leader said they are waiting for a positive response from Israel to begin negotiations on the details of an agreement, according to CNN.
Daily Summary Market Movers: Gold Price Advances After US NFP
- US non-farm payrolls rose by 206,000, beating the 190,000 estimate, but the April and May figures were revised up to 108,000 and 218,000, respectively.
- Average hourly earnings (AHE) fell from 4.1% to 3.9% on the year, which is in line with expectations, while the unemployment rate increased from 4% to 4.1%.
- On Wednesday, the Federal Open Market Committee (FOMC) released the minutes of its June meeting, which showed that most participants rated current policy as restrictive but had opened the door to a rate hike. Policymakers acknowledged that the economy is cooling and may react to sudden economic weakness.
- According to the CME FedWatch Tool, the odds of a 25 basis point Fed rate cut in September are at 70%, up from 66% on Thursday.
- The December 2024 fed funds rate futures contract implies that the Fed will ease policy by 40 basis points (bps) toward the end of the year.
Technical analysis: Gold price presses the neck of the head and shoulders, targets $2,400
The price of gold has decisively broken the Head-and-Shoulders neck, lifting spot prices near the $2,390 mark, indicating that the bulls are on top and higher prices are ahead.
Momentum has shifted in favor of buyers, as depicted by a rising Relative Strength Index (RSI). A daily close above the June 21 high of $2,368 could open the door to a higher trading range within the $2,370-$2,400 zone, with buyers targeting higher prices.
If the price breaks above $2,400, it will expose the year-to-date high of $2,450 before challenging $2,500.
On the other hand, if sellers take the spot price below $2,350, further declines could target the $2,300 level. If this support fails, the next demand area would be the May 3 low of $2,277, followed by the March 21 high of $2,222.
Golden FAQ
Gold has played a key role in human history as it has been widely used as a store of value and medium of exchange. Currently, apart from its luster and use for jewellery, the precious metal is widely seen as a safe-haven asset, meaning it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and depreciating currencies as it is not reliant on any specific issuer or government.
Central banks are the largest holders of gold. In their bid 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 currency. High gold reserves can be a source of confidence in a country’s solvency. 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 highest annual purchase since records began. Central banks from emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US dollar and US Treasuries, which are major reserves and safe 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 rise in the stock market tends to weaken the price of gold, while selling in riskier markets tends 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 cause the price of gold to escalate quickly due to its safe-haven status. As a non-yielding asset, gold tends to rise with lower interest rates, while a higher cost of money usually weighs on the yellow metal. However, most of the moves depend on how the US dollar (USD) behaves as the asset is valued in dollars (XAU/USD). A strong dollar tends to keep the price of gold in check, while a weaker dollar is likely to push gold prices higher.
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