Gold prices rebounded during the European session on Monday, breaking a two-day losing streak. This was in response to the market’s digestion of the U.S. employment data, which was weaker than expected. The U.S. Nonfarm Payrolls (NFP) report, a significant economic indicator, has increased the likelihood of a September rate cut by the U.S. Federal Reserve (Fed). This potential rate cut weakened the U.S. Dollar (USD) and boosted USD-denominated gold. Importantly, a reduction in interest rates lowers the opportunity cost of holding gold, potentially driving up both its demand and price.
Despite the positive movement in gold prices, the easing geopolitical tensions in the Middle East, particularly the Iran-Israel conflict, could dampen demand for gold as a safe-haven asset. This could potentially limit its price gains. Gold traders are closely monitoring speeches by Fed officials this week, with Fed’s Thomas Barkin and John Williams scheduled to speak on Monday. Any dovish signals from these Fed speeches could provide further uplift to gold prices.
Regarding market movements, the gold price has begun to recover some ground lost amid recent downbeat U.S. economic data. The U.S. NFP for April increased by 175,000, significantly below the March figure of 315,000 (revised from 303,000) and missing market expectations 243,000. Additionally, the Unemployment Rate increased to 3.9% in April from the previous 3.8%, while Average Hourly Earnings growth slowed to 3.9% year-over-year in April from 4.1% in March. The U.S. ISM Services PMI also fell into contraction territory, dropping from 51.4 in March to 49.4 in April, below the anticipated 52.0.
Fed Governor Michelle Bowman has expressed concerns that inflation could remain high for longer than many anticipate, noting her willingness to raise rates if inflation stalls or reverses. Meanwhile, Chicago Fed President Austan Goolsbee described the latest U.S. employment report as solid, underscoring that the current monetary policy is restrictive. Post-NFP, the odds of a September rate cut have risen sharply to nearly 90%, up from 55% before the release, as per the CME FedWatch tool.
From a technical perspective, gold prices are currently showing strength. The precious metal is trading above the key 100-day Exponential Moving Average (EMA) on the daily chart, maintaining a bullish outlook. However, gold prices are still confined within a descending trend channel that began in mid-April, suggesting potential for further consolidation. This technical analysis provides a comprehensive view of the current market situation.
Immediate resistance for gold is located near the 100-EMA at $2,318. A decisive break above this level could reaffirm the short-term positive trend. The next resistance is at the $2,350–$2,355 area, marking a confluence of the high from April 26 and the upper boundary of the descending trend channel. A breakout above this could target the $2,400 mark and potentially set a course for a new all-time high near $2,432.
On the downside, if selling pressure intensifies, gold could breach the psychological $2,300 mark, potentially dropping to the low of May 3 and the lower limit of the descending trend channel at $2,275. Further declines could find support near the low of April 1 at $2,228, followed by the critical $2,200 level.
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