Gold price have gained momentum, with XAU/USD rising by about 0.25%, reaching the $2,360 range on Thursday. This surge is primarily fueled by expectations that the Federal Reserve will start reducing interest rates by September. Despite the stronger-than-expected US ISM Services PMI data released on Wednesday, the market remains confident in the rate cuts.
Gold Rises Amid Speculation of Interest Rate Cuts
Gold price saw an increase on Thursday as investors speculated on potential rate cuts by the Federal Reserve. The CME FedWatch tool indicates a 69% chance of a rate reduction by September, as shown by the 30-day US Fed Fund Futures data. Lower interest rates typically benefit Gold by reducing the opportunity cost of holding this non-yielding asset.
Service Sector Data Surpasses Expectations, Eyes on Nonfarm Payrolls
On Wednesday, the US economy received a boost from better-than-expected ISM Services PMI data for May. This positive data, along with optimism in the tech sector, strengthened the US Dollar (USD). However, investors are now focusing on Friday’s US employment data, especially the Nonfarm Payrolls (NFP) report. The NFP report could significantly impact Gold prices. Although expectations suggest a 185K rise in May, recent weak data like the negative JOLTS Job Openings and the below-expected ADP Employment Change have dampened enthusiasm. If the NFP report also shows weakness, the USD could face downward pressure, increasing the likelihood of an early interest rate cut by the Federal Reserve, which would further support Gold prices.
Gold Breaks Out, Challenging the Downtrend in Technical Analysis
Gold has broken out of its previous trading range between $2,315 and $2,358, indicating a shift in market sentiment. This breakout challenges the short-term downtrend and hints at a potential reversal. With XAU/USD surpassing the upper boundary, a target of $2,385 is now in sight, derived from the 0.618 Fibonacci extension of the range. This target will be confirmed if Gold advances further above $2,375.
Analyzing XAU/USD on the 4-Hour Chart
In May, Gold’s breach below the trendline initially pointed to downward targets, but the recent upward breakout has cast doubt on these predictions. However, if Gold re-enters the previous range and falls below the $2,315 low, these downward targets could be revived. Technical analysis shows that the distance covered before a breakout can provide clues about the next move. The first target in this scenario is $2,303, based on the 0.618 Fibonacci extension of the previous move. A stronger decline might push Gold towards support at $2,279. Despite short-term fluctuations, Gold’s medium and long-term trends remain positive, indicating significant potential for recovery.
Conclusion
Gold’s recent surge reflects the market’s anticipation of rate cuts by the Federal Reserve, with technical analysis indicating potential upward momentum. As economic data continues to unfold, Gold’s performance remains a focal point for investors.
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