Highlights
- US employment figures cause gold prices to plummet
- Volatility in gold attributed to uncertainty over Fed policy
- Strong US labor market rattles Fed rate cut predictions
Overview
Gold (XAU) prices are plunging at the mid-session on Friday due to the release of better-than-anticipated employment figures in the United States. This caused traders to rethink their predictions of potential interest rate reductions by the Federal Reserve.
At 15:45 GMT, Gold (XAU) is trading $2016.80, down $33.20 or -1.62%. The SPDR Gold Shares ETF (GLD) is at $187.42, down $3.02 or -1.59%.
Gold was up 1.3% for the week after surging to $2,072.19 on Thursday, just shy of a record high of $2,072.49 after the Federal Reserve hinted its hiking cycle may be ending. But those gains were quickly unwound as U.S. employers boosted hiring in April while raising wages.
Gold’s Volatility Tied to Uncertainty
The volatility in gold is being heavily influenced by the uncertainty surrounding the banking sector, the US debt ceiling, Fed policy, and the direction of interest rates. While the data may not lead to a rate hike by the Fed in June, it may remind rate-cut supporters to settle down, which is putting pressure on zero-yield gold. The rise in 10-year Treasury yields after the jobs data is also weighing on gold, diminishing its appeal.
Economic Data Shapes Gold’s Future
Looking forward, any economic data pointing to a cooling US economy and potential rate cuts in the mid to long term is likely to support gold prices. Conversely, positive surprises may have the opposite effect.
Traders Eyeing Banking, Debt Concerns
Aside from economic data, the US banking sector and debt ceiling developments are also on the radar. Uncertainty in these areas could lead to further panic and increased demand for zero-yielding gold.
However, analysts warn that severe stress in all markets, including gold, can cause prices to fall. So, in times of high uncertainty around the US banking sector and debt ceiling, it’s important to hold on to your hats as price action could get nasty and punish both bulls and bears.
Technical Analysis
Gold is sharply lower, but still holding above the daily pivot at $1990.78, which is the closest support.
If buyers believe in the upside potential for gold then they could return on a pullback into the pivot. Essentially, no one wants to chase the market higher and would rather reenter on a pullback into a value area. Especially in this volatile environment and the overall uncertainty about the strength of the U.S. economy and future Fed policy.
If buyers are able to sustain a rally above $1990.78 then this may create the upside momentum needed to challenge (R1) at $2068.38.
If the selling is strong enough to take out the pivot then we could see the start of a steep break with $1910.92 (S1) the next objective.
| S1 – $1910.92 | R1 – $2068.38 |
| S2 – $1833.32 | R2 – $2148.23 |
| S3 – $1753.47 | R3 – $2225.83 |