On Friday, the price of gold (XAU/USD) climbs by nearly one percentage point, reaching levels in the $2,360 range. This surge is driven by heightened geopolitical tensions surrounding Gaza, reinforcing gold’s status as a safe-haven asset.
Furthermore, concerns about the US labor market, fueled by recent data, have led to speculation that the Federal Reserve (Fed) might consider lowering interest rates sooner than anticipated. This speculation has boosted the appeal of gold, which doesn’t offer yield, making it more attractive to investors.
Gold Price Surges Amid End of Peace Talks and US Labor Market Worries
Gold prices are on the rise as tensions escalate due to the breakdown of peace talks between Hamas and Israel in Cairo. Israeli military forces are gathering near Rafah, the last major urban area in Gaza that remains relatively intact. In response to escalating tensions, the US has decided to halt shipments of weapons and military assistance to Israel after President Biden cautioned against a full-scale attack on Rafah. Despite these warnings, there are reports of strikes hitting a mosque and several residential buildings in Rafah, resulting in the tragic loss of life, including women and children, as reported by Reuters.
US Jobless Claims Surprise to the Upside
In the United States, there is growing evidence pointing to a weakening labor market, reigniting expectations that the Federal Reserve might need to lower interest rates sooner than initially anticipated.
The latest US Initial Jobless Claims data, released on Thursday for the week ending May 3, showed an unexpected increase of 231,000, surpassing expectations of 210,000. This figure rose from a revised 209,000 in the previous week.
This development follows a Nonfarm Payrolls report for April that exhibited lower-than-anticipated results across almost all key metrics.
These data collectively suggest that the US economy is grappling with challenges amid the current high-interest-rate environment, leading to increased speculation that the Federal Reserve could implement rate cuts sooner than previously envisaged.
However, recent statements from Federal Reserve officials, notably from Boston Fed President Susan Collins and Minneapolis Fed President Neel Kashkari, have been leaning towards a hawkish stance. Both have argued that inflationary pressures remain elevated, making it premature to consider lowering interest rates.
Major Central Banks Signal a Change in Stance
Globally, many central banks are either reducing interest rates or indicating a willingness to do so, creating an environment where interest rates seem to be reaching their peak and starting to decline. This trend is favorable for gold.
Recent actions include Sweden’s Riksbank cutting interest rates for the first time since 2016, and an increased number of Bank of England (BoE) officials advocating for rate cuts. Additionally, the Swiss National Bank (SNB) decided to cut interest rates at its March meeting.
The European Central Bank (ECB) has strongly suggested it will lower interest rates in June, while the Reserve Bank of Australia (RBA) maintained a dovish tone alongside its decision to keep interest rates unchanged at its recent meeting.
Technical Analysis: Gold Price Breaks Higher, Initiating Short-Term Uptrend
The price of gold (XAU/USD) has surged after breaking above a previous trading range.
On the 4-hour chart, there’s been a shift in the pattern of highs and lows, indicating that gold is now in a short-term uptrend. This suggests a likelihood of further upward movement in the near future.
XAU/USD 4-Hour Chart Analysis
The Relative Strength Index (RSI) momentum gauge is indicating that Gold might be overbought, hinting that it could be vulnerable to a downward correction. A retreat into neutral territory would signal a potential sell-off and confirm the need for a correction. However, for now, it’s advised for long-term investors to refrain from increasing their positions.
Nevertheless, the upward trend continues, with the price of Gold continuing to rise. The next target for Gold’s upward movement is approximately $2,400, aligning with the peak levels observed in April.
Despite the possibility of short-term corrections, the bullish trends evident on both the medium and long-term charts (daily and weekly) provide a supportive backdrop for Gold.
