Gold Price Forecast: XAU/USD plunges from weekly highs to $1840s as Fed’s Mester crosses wires

• The yellow metal would finish the week on the defensive, losing 0.28%.
• Sentiment remains negative, as US equities fall between 1.02% and 2.57%.
• Fed’s Mester supports 50 bps hikes in June and July; September is still open for 50 or 25 bps increases.
• Gold Price Forecast (XAU/USD): Failure at $1889.91, exacerbates a fall towards $1800.

Gold spot (XAU/USD) slumps from three-week highs near $1874 towards the confluence of the 20 and the 200-day moving averages (DMAs) around the $1840s region after the US Labor Department revealed that the US economy added more jobs than expected. At the time of writing, XAU/USD is trading at $1848.43, falling 1.06%.

Fed speakers to keep Gold prices on the defensive

In the meantime, Cleveland’s Fed Loretta Mester (2022 voter) is crossing the wires. She said that the one problem that the Fed has is inflation, and contrarily to what JP Morgan’s CEO Jamie Dimon said about a hurricane ahead in a Bloomberg article, Mester does not see it. Nevertheless, added that risks of recession have gone up.

Loretta Mester added that she supports 50 bps increases in June and July while not ruling it out in the September meeting, but it would be data-dependent. She said that if she sees compelling evidence of lower inflation, then a 25 bps hike in September would be appropriate.

Earlier, the US Nonfarm Payrolls for May, illustrated that the economy added 390K new jobs, far more than the 318K foreseen. Nevertheless, financial analysts’ chatter about the US labor market still supports the view that the US Federal Reserve will tighten aggressively after receiving the green light.

Analysts at Commerzbank, in a note, wrote that “The labor market thus continues to be very robust. Due to the unchanged high demand for labor, there is still a risk of a wage-price spiral. Further sharp Fed rate hikes are likely.” They stated that they “maintain our forecast that the Fed will raise its key rate to 3.00% by the end of the year, i.e., by another 200 bps.”

In the US jobs report, Average Hourly Earnings on its YoY reading remained unchanged at 5.2%, reflecting the tight labor market though easing a little bit, worries of a wage-price spiral.

In the meantime, the US Dollar Index, a gauge of the greenback’s value vs. a basket of peers, is rising 0.42%, sitting at 102.187, a headwind for Gold prices. That, alongside the US 10-year Treasury yield aiming towards the 3% threshold, currently at 2.96%, will keep the non-yielding metal on the defensive.

In the week ahead, the US Federal Reserve board members begin their blackout period on preparations for the June meeting. However, the US economic docket would keep investors’ eyes on the May inflation report alongside the UoM June’s Consumer Sentiment.

Gold Price Forecast (XAU/USD): Technical outlook

XAU/USD remains under pressure after failing to break above March 29 swing low-turned-resistance at $1889.91. Hence, XAU/USD sellers entered the market and sent Gold prices sliding near the intersection of the 20 and 200-DMA near the $1841.65-$1842.51 area. Further exacerbating the pullback is the Relative Strength Index (RSI) in negative territory and aiming lower.

Therefore, XAU/USD’s first support would be the $1841-$1842 area. Break below would expose the June 1 cycle low at $1828.33, followed by the Bollinger band bottom line at $1809.93.