- XAU/USD plunges, shedding 1.68% as rate hikes and soaring bond yields dull gold’s allure.
- US Nonfarm Payrolls beat estimates with 253K new jobs, pushing Treasury bond yields higher.
- Gold demand dips in Q1 2023, with the central bank and Chinese consumer purchases offset by investor buying.
Gold price slides sharply as the XAU/USD failed to hold to its gains nearby the year-to-date (YTD) high at $2081.46, as two major central banks increased rates, boosting bond yields. Additionally, a better-than-expected jobs report in the United States (US), triggered a jump on US T-bond yields. At the time of writing, the XAU/USD is trading at $2015.51, below its opening price by 1.68%.
Gold’s rally dented by US data, lower demand
US equities continued to recover some ground after the US banking turmoil dented mood. The US Department of Labor revealed the April US Nonfarm Payrolls, which showed that the labor market remains tight, with the economy adding 253K jobs, crushing forecasts of 180K. Additionally, the report revealed that wages are increasing, as shown by the Average Hourly Earnings jumping 0.5% MoM, above the 0.3% forecasts, while the Unemployment Rate continued to slump past 3.5%, at 3.4%.
XAU/USD plunged on the US jobs data release, from around $2038 to $2007, but later pierced below the $2000 figure, hitting a three-day low of $1999.57. This resulted from short-term futures traders pairing Federal Reserve (Fed) rate cuts, as could be seen in US Treasury bond yields, which are skyrocketing, following the NFP report.
Must read: Breaking: US Nonfarm Payrolls rise by 253,000 in April vs. 179,000 expected
The US 2 and 10-year Treasury notes are climbing sharply 19 and 9 basis points each, yielding 3.924% and 3.443%, respectively. Despite the previously mentioned, the greenback remains downward pressured, registering modest losses.
The US Dollar Index (DXY) measures the performance of six currencies vs. the greenback, dropping 0.15%, down to 101.25.
Of late, St. Louis Federal Reserve President James Bullard commented that a soft landing is possible, adding that the labor report was “impressive.” Bullard said he’s open-minded about raising or holding rates at the FOMC’s next meeting in June, as he joined the “data-dependant” posture. Nonetheless, Bullard feels that rates need to “grind higher.”
Another reason that weighed on XAU/USD’s prices is that global demand for Gold fell during the first quarter of 2023, as large purchases made by central banks and Chinese consumers were offset by investors buying, as reported by the World Gold Consortium (WGC).
The calendar is pretty much light, with the Fed Governor Lisa Cook pending to cross newswires.
XAU/USD Daily Chart
After hitting a new ATH, XAU/USD retreated below the 61.8% Fibonacci retracement and was $2 shy of hitting the 78.6% Fibonacci level. Nevertheless, Gold bounced from its daily low of $1999.57, above the 61.8% Fibonacci retracement at $2015.26. Notably, the Relative Strength Index (RSI) indicator remains in bullish territory, although it’s moving down. The 3-day Rate of Change (RoC) turned neutral in a possible sign of buyers booking profits ahead of the weekend.
For a bullish continuation, XAU/USD buyers must reclaim the 50% Fibonacci level at $2028. Break above will expose the 38.2% Fib retracement at $2040.60 before clearing the path toward the ATH. Conversely, a fall below $2000 would expose a one-month-old support trendline that passes around the $1970-80 area.
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Gold prices have declined substantially on Monday as the US Federal Reserve and its peers in Europe continue to signal further interest rate hikes, paired with a strong US Non-Farm Payrolls (NFP) report.
XAU/USD, the currency pair representing one troy ounce of gold and the US dollar, fell to its lowest level in more than five months on Monday, tumbling below $1,200. The decline was sparked by the Federal Reserve’s hawkish hike of its benchmark interest rate this month, with the central bank’s chair reiterating its stance at an event on Thursday. The European Central Bank announced its intention to continue hiking rates, keeping investors away from gold as a safe haven.
The drop was further amplified by the positive NFP report that strengthened the US dollar and added to the existing sell pressure on the yellow metal. The NFP reading beat expectations, showing higher-than-anticipated job growth in July.
Analysts are predicting further losses in the near-term, with a break below the $1,200 mark possibly leading to an extended decline in gold prices. “As a result of the recent hawkish turns from the ECB and the Fed, the probabilities of a US dollar appreciation and gold price weakness have increased, ” said Harry Tchilinguirian, head of commodity strategy at BNP Paribas.
It is worth noting, though, that political uncertainty is likely to remain supportive of gold prices. Analysts expect that ongoing trade tensions between the US and China and the renewed uncertainty around Brexit could cause investors to move towards gold as a safe haven.
In conclusion, gold prices have dipped on hawkish rate hikes from central banks and a strong reading from the US NFP. Analysts, however, are expecting further losses in near-term with a break of $1,200 possibly leading to a further decline. Investors are likely to continue to retain their safe haven bets, supported by increasing geopolitical uncertainty.