Gold prices, denominated in USD (XAU/USD), managed to break a two-day losing streak during Monday’s European session. This reversal was fueled by weaker-than-expected US employment reports, which bolstered expectations of a September rate cut from the US Federal Reserve (Fed). The resultant decline in the US Dollar (USD) provided a lift to gold, traditionally considered a safe-haven asset.
The prospect of lower interest rates tends to diminish the opportunity cost of holding non-yielding assets like gold, thereby stimulating demand and driving prices higher. However, the recent easing of geopolitical tensions in the Middle East, particularly regarding the Iran-Israel conflict, alongside a prevailing risk-on sentiment, may counterbalance this effect by reducing the appeal of safe-haven assets such as gold.
Market participants are closely monitoring speeches from Fed officials this week, notably those of Fed’s Thomas Barkin and John Williams on Monday. Any dovish rhetoric from these policymakers could further bolster XAU/USD.
Key highlights from the daily market movements include:
The US Nonfarm Payrolls (NFP) for April fell short of expectations, rising to 175K from a revised 315K in March, missing the market consensus of 243K.
The Unemployment Rate in April rose to 3.9% from the previous reading of 3.8%, while Average Hourly Earnings dropped to 3.9% year-on-year from 4.1% in March.
The US ISM Services PMI contracted, slipping from 51.4 in March to 49.4 in April, below the market estimate of 52.0.
Fed officials expressed varying views on inflation and monetary policy, with Fed Governor Michelle Bowman cautioning about the prolonged elevation of inflation and Chicago Fed’s Austan Goolsbee highlighting the solidity of the latest employment report and the current restrictive monetary policy stance.
Market expectations for a September rate cut surged to nearly 90% following the release of the NFP report, up from 55% prior, according to the CME FedWatch tool.
From a technical perspective, gold prices remain within a descending trend channel in the near term. While trading above the key 100-day Exponential Moving Average (EMA) signals a bullish outlook, the presence of the descending channel suggests potential consolidation ahead. The 14-day Relative Strength Index (RSI) hovering around the midpoint indicates a lack of clear direction among traders.
Upside resistance levels include the 100-EMA at $2,318, followed by the $2,350–$2,355 range, where a breakout could pave the way towards $2,400 and beyond. Conversely, downside support lies at $2,300, with further declines possibly targeting $2,275 and $2,228 levels.
