The gold price plunge took a sharp downturn on Monday, reversing some of the gains from last Friday. The metal’s value dropped by over 1% as investors regained their risk appetite. At the same time, US equities showed growth and US Treasury bond yields decreased. The XAU/USD is now trading at $2,358, down from a daily high of $2,391.
Mixed US Employment Report
Last week’s US Non-Farm Payrolls (NFP) report presented mixed results. While the June figures exceeded expectations, revisions for April and May suggested a significant cooling of the US job market. This led to an increase in the US Unemployment Rate, fueling speculation that the Federal Reserve (Fed) might cut interest rates sooner than anticipated.
Impact of China’s Gold Purchases
Gold price plunge were further impacted by the People’s Bank of China (PBoC) deciding not to purchase gold in June, unlike in May. At the end of June, China held 72.80 million troy ounces of gold.
US Treasury Bond Yields
The yield on the US 10-year Treasury bond fell by almost two basis points to 4.27%. This decline indicates that market participants expect the Fed to lower borrowing costs due to concerns about the labor market.
Fed Rate Cut Expectations
According to the CME FedWatch Tool, investors are now pricing in a 73% chance of a Fed rate cut in September, up from 71% last Friday.
Upcoming US Economic Data
The US economic calendar features Fed Chairman Jerome Powell’s semi-annual Congressional Testimony and inflation data for both consumers and producers. Initial Jobless Claims and the University of Michigan Consumer Sentiment report will also be part of the schedule.
Daily Digest Market Movers
- US CPI Forecast: The Consumer Price Index (CPI) is expected to decrease from 3.3% to 3.1% year-over-year (YoY) in June, while core inflation is predicted to remain steady at 3.4% YoY.
- Initial Jobless Claims: Claims for the week ending July 6 are anticipated to rise from 238K to 240K.
- Consumer Sentiment: July’s Consumer Sentiment is forecasted to improve to 68.5, up from 68.2 in June.
- FOMC Meeting Minutes: Minutes revealed that most participants view the current policy as restrictive but are open to future rate increases. Policymakers noted that the economy is cooling and could respond to unexpected economic weakness.
- Fed Funds Rate Futures: The December 2024 futures contract implies a 39 basis point easing of policy by year-end.
Technical Analysis: Gold Price Movement
The gold price has retreated after breaking below the Head-and-Shoulders neckline. The XAU/USD price reached $2,392 before dropping to the current rate of $2,357, suggesting potential consolidation.
Momentum Indicators
The momentum shows that buyers are losing strength, with the Relative Strength Index (RSI) approaching the 50-neutral line. If this line is crossed, it may indicate that sellers are taking over.
Potential Support and Resistance Levels
- Support: If the XAU/USD falls below $2,350, the next target could be $2,300. If this level is breached, the next support zone is the May 3 low of $2,277, with the following level being the March 21 high of $2,222.
- Resistance: If gold prices climb above $2,400, the next resistance level is the year-to-date high of $2,450, ahead of the $2,500 mark.
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