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11.06.2024, 11:51

Gold continues bearish tone on outlook for US interest rates

  • Gold rolls over after retesting key resistance as the outlook for US interest rates remains elevated. 
  • This keeps the opportunity cost of holding non-yielding Gold high, making it less attractive to investors. 

Gold (XAU/USD) trades a quarter of a percent lower on Tuesday after being rejected by key support-turned-resistance at $2,315 late Monday. 

Higher interest-rate expectations in the US are weighing on the precious metal. The release of better-than-expected US jobs data on Friday suggested continued inflationary pressures. This, in turn, makes it less likely the US Federal Reserve (Fed) will lower interest rates in September, and the maintenance of higher interest rates increases the opportunity cost of holding non-yielding Gold, making it less attractive to investors.   

Gold weakens after US employment data alters outlook for interest rates

The positive wage-and-employment picture painted by the US Nonfarm Payrolls (NFP) data suggested a reappraisal of US interest-rate expectations, with the Fed now expected to maintain interest rates elevated for longer. 

The market’s expectations that the Fed will cut interest rates in September fell to just over 50% after the release of the NFP, from 67% previously, according to the CME FedWatch tool, which bases its estimates on 30-day US Fed Fund Futures pricing data. The current probability stands at around 54%. 

That said, the outlook for global interest rates is more subdued, providing a supportive backdrop for Gold. The Bank of Canada (BoC) cut its overnight rate by 0.25% to 4.75% last week, as did the European Central Bank (ECB). The release of lower inflation data in Switzerland has prompted speculation that the Swiss National Bank (SNB) could also cut interest rates at its June 20 meeting after an initial cut in March. 

Gold traders will now be looking for further cues on price direction at the Federal Reserve June meeting, which concludes on Wednesday, as well as the US Consumer Price Index (CPI) data for May out on the same day. 

Technical Analysis: Gold retests resistance and rolls over

Gold has pulled back to retest the bottom of the range at $2,315, turned over, and begun falling again. Gold is in a short-term downtrend, and given that “the trend is your friend,” it will probably continue lower.  

The next downside target is at about $2,285, the 100% extrapolation of the prior downward movement in May “a”. A stronger move down could see Gold meet support at $2,279 (late April-early May swing low). 

XAU/USD 4-hour Chart

On the other hand, a decisive break above the former floor of the range at $2,315 could suggest the short-term downtrend is losing momentum and more upside might be on the horizon. 

Despite short-term weakness, the precious metal’s medium and long-term trends are still bullish, and the risk of a recovery remains high. 

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews ​and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Read more.

Last release: Fri Jun 07, 2024 12:30

Frequency: Monthly

Actual: 272K

Consensus: 185K

Previous: 175K

Source: US Bureau of Labor Statistics

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.


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