Gold Price Forecast: Lower as Firmer Dollar Offsets Fed Rate Hike Pause Bets

Highlights

• Gold prices pressured by strong dollar after robust payrolls report.
• Mixed data likely overlooked by Federal Reserve, but rate hike pause possible.
• Market sentiment leans towards unchanged interest rates, decreasing gold’s appeal.

Outlook

Gold prices are facing downward pressure in rangebound trading on Monday as the dollar strengthened following a robust U.S. payrolls report. Despite the prospects of the Federal Reserve pausing its rate hikes this month, the greenback’s firmness overshadowed support for the precious metal.

At 05:28 GMT, Gold (XAU) is trading $1944.33, down $5.105 or -0.26%. On Friday, the SPDR Gold Shares ETF (GLD) settled at $181.02, down $2.74 or -1.49%.

Jobs Surge, Gold Dips

On Friday, gold prices slipped over 1% after data revealed that U.S. nonfarm payrolls had increased by a substantial 339,000 jobs last month, surpassing the economists’ forecast of 190,000. However, the unemployment rate unexpectedly surged to a seven-month high of 3.7%, up from April’s 53-year low of 3.4%. Although the hotter-than-expected jobs data elevated Treasury yields, gold remained on track for a weekly gain due to hopes that the Federal Reserve would halt interest rate hikes.

Yields Up, Gold Down

The rise in benchmark 10-year Treasury yields and the strengthening dollar made gold, priced in greenbacks and offering zero interest, less appealing to investors. The mixed nature of the data is expected to balance itself out, with the Federal Reserve likely to look past these figures and proceed with their current plan, which appears to be a pause in rate hikes.

Fed’s Harker Opposes Rate Hike

Philadelphia Fed chief Patrick Harker expressed his belief that U.S. central bankers should refrain from raising interest rates at their upcoming meeting. Market expectations reflect this sentiment, with a 79.3% chance priced in that the Fed will leave interest rates unchanged at the June 13-14 meeting, as indicated by the CME FedWatch Tool.

Gold’s Limited Downside

While the higher unemployment rate encouraged the market’s anticipation of a pause in rate hikes, money markets and comments from Fed vice chair nominee Philip Jefferson also favored this scenario. As a result, any downside for gold may be limited, even though it has experienced a reduction in safe-haven flows due to concerns about the debt ceiling. The focus now shifts to whether XAU, the gold futures symbol, will break the support level at $1,917.41, potentially leading to prices below $1,900.00.

High Interest Rates Dampen Gold’s Appeal

Gold, being a non-interest-bearing asset, tends to lose attractiveness in a high interest rate environment. Consequently, the optimism surrounding interest rates has offset any potential losses for gold, particularly since the U.S. has reached an agreement on its debt ceiling and successfully avoided default.

Short-Term Outlook: Weaker

In summary, gold prices are facing downward pressure as the dollar strengthened following a robust U.S. payrolls report. While the mixed data is expected to be overlooked by the Federal Reserve, the possibility of a pause in interest rate hikes remains. Additionally, market sentiment leans towards leaving interest rates unchanged, reflecting a decreased appeal for gold in a higher interest rate environment.

Technical Analysis

Gold (XAU) is trading on the bearish side of $1992.24 (PIVOT), putting it in a weak position. This level is also the nearest resistance and a potential trigger point for an acceleration to the upside.

A sustained move under $1992.24 (PIVOT) will indicate the selling pressure is getting stronger. If this creates enough downside momentum then look for the selling to possibly extend into $1917.41 (S1).

A sustained move over the $1992.24 (PIVOT) will signal the return of strong counter-trend buyers. If this creates enough near-term momentum then look for a surge into the $2052.37 (R1).

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