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May 26, 2024
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Gold falls on broader improvement in US labor market



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  • Gold price falls after higher-than-projected US private payrolls data.
  • The market participants are still worried about the timing of rate cuts from the Fed.
  • Further action in bullions and the US Dollar will be guided by the official US Employment data.

Gold price (XAU/USD) surrenders their entire intraday gains as United States labor market conditions have improved broadly. The US Automatic Data Processing (ADP) Employment Change data for December and weekly jobless claims for the week ending December 29 remains upbeat. Private US employers hired 164K workers against expectations of 115K and the former reading of 103K. The US department of Labor reported that individuals claiming jobless benefits for the first time dropped to 202K vs. the consensus of 216K and the prior reading of 220K. 

The broader appeal for the Gold price is upbeat as prospects of rate cuts from the Federal Reserve (Fed) have strengthened after the release of the Federal Open Market Committee (FOMC) minutes. While uncertainty about when exactly the Fed will announce a rate cut decision could keep volatility in the Gold price high.

Meanwhile, robust economic prospects of the United States economy could force Fed policymakers to delay the announcement of a rate cut than what market participants have forecasted despite their concerns about policy over-tightening. 

Going forward, investors should be prepared for a sheer volatility as the US Nonfarm Payrolls (NFP) report is due for release on Friday. 

Daily Digest Market Movers: Gold price surrenders intraday gains while US Dollar revives

  • Gold price faces selling pressure near $2,050 as upbeat US labor market conditions have trimmed prospects of early rate cuts by the Fed.
  • The uncertainty over rate cuts this year has dissolved as Fed policymakers are worried about overtightening of the monetary policy, according to the FOMC minutes released on Wednesday while the timing element is still vague.
  • In the latest projections, the Fed sees three rate cuts or interest rates reducing by 75 basis points (bps) this year.
  • The absence of cues about when exactly the central bank will start trimming interest rates has slightly impacted prospects of rate cuts from March.
  • As per the CME Fedwatch tool, chances in favour of rate cut in March by 25 bps to 5.00-5.25% have dropped to 66.5%.
  • Discussions about rate cuts from Fed policymakers indicate that underlying price pressures are clearly returning to the 2% target and they are confident of achieving price stability without pushing the economy into a recession.
  • The US Dollar Index corrects after printing a fresh two-week high at 102.70 as one thing becomes clear in investors’ minds – that the Fed will be the early adopter of a rate-reduction cycle among the Group of Seven economies. 10-year US Treasury yields drop sharply to near 3.91%.
  • The market mood, however, could be volatile ahead amid uncertainty regarding the US NFP report and the ISM Services PMI for December, which will be released on Friday.
  • This week, the US Institute of Supply Management (ISM) showed some signs of recovery in factory data. The agency reported a sharp increase in Manufacturing PMI to 47.4 against expectations of 47.1 and the former reading of 46.7. The factory data however remained below the 50.0 threshold for the straight 14th month, which itself indicates contraction but an outperformance indicates that overall production is coming back on track.

Technical Analysis: Gold price struggles to recapture 20-EMA

Gold price faces pressure while recapturing the 20-period Exponential Moving Average (EMA), which trades around $2,050 on a two-hour scale. The precious metal witnessed a steep fall after a breakdown below the support zone placed around $2,055, which is going to act as a resistance ahead.

The Relative Strength Index (RSI) (14) is demonstrating a range shift move from 60.00-80.00 to 20.00-60.00 in which the 60.0 region will act as a ceiling for the Gold price bulls.

On a daily time frame, the Gold price finds support after taking a cushion from the 20-day EMA, which trades around $2,040. This indicates that the overall demand for the Gold price has not faded yet.

Gold FAQs

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim 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 the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven 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 rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend 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 quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.



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