Gold Price Forecast: Weaker as NFP Data Raises Chances of May Rate Hike

Highlights

• Gold prices down nearly 1% on strong U.S. employment data
• Federal Reserve likely to increase rates in May
• Bullish outlook for gold prices in short term if prices remain above $1,965.90

Overview

On Monday, gold prices were down about 1%, nearing the psychological $2,000 level in the process. This decline was a result of several factors, including the recent U.S. employment data, which indicated a tight labor market. This development raised expectations of another rate hike by the Federal Reserve in May, leading to profit-taking and weaker gold prices. Additionally, firm Treasury yields and a stable dollar also contributed to the fall in gold prices.

At 07:14 GMT, June Comex gold futures are trading $2011.60, down $14.80 or -0.73%. The XAU/USD is at $1995.37, down $10.21 or -0.51%. On Thursday, the SPDR Gold Shares ETF (GLD) settled at $186.46, down $1.37 or -0.73%.

The U.S. Labor Department released data on Friday, which showed that non-farm payrolls increased by 236,000 jobs in March. Although this figure was slightly below the expected 239,000, the data indicated a drop in the unemployment rate to 3.5% from the prior month’s 3.6%. Consequently, the report increased the likelihood of the Federal Reserve increasing rates in May, with markets pricing in a 63.4% chance of a 25 basis-point (bps) hike, according to the CME FedWatch tool.

Despite the drop in gold prices, there is a bullish outlook for the precious metal in the short term, provided prices remain above $1,965.90. Gold is often considered a hedge against inflation, but higher rates increase the opportunity cost of holding the non-yielding asset. Nonetheless, the bull trend, which began in November 2022, remains intact. However, a higher core U.S. CPI report on Wednesday could solidify a 25 bps hike and make it less likely for gold prices to reach all-time highs this month unless there is a new catalyst.

Daily June Comex Gold Technical Analysis

The main trend is up according to the daily swing chart. A trade through $2049.20 will signal a resumption of the uptrend. A move through $1965.90 will change the main trend to down.

The minor range is $1965.90 – $2049.20. The market successfully tested its pivot at $2007.60 earlier in the session, making it support.

The short-term range is $1830.20 to $2049.20. If the main trend changes to down then its retracement zone at $1937.60 – $1912.20 will become the primary downside target.

Daily June Comex Gold Technical Forecast

Trader reaction to the minor pivot at $2007.60 will likely determine the direction of the June Comex gold futures contract on Monday.

Bullish Scenario

A sustained move over $2007.60 will indicate the presence of buyers. If this creates enough upside momentum then look for a test of $2049.20. Overtaking this level with conviction could trigger an acceleration to the upside with $2097.20 the next major target.

Bearish Scenario

A sustained move under $2007.60 will signal the presence of sellers. This is a potential trigger point for an acceleration to the downside with $1965.90 the next target.