- Gold prices experienced a significant decline as they were unable to surpass the resistance level of $2,531. Ultimately, they closed at $2,493 due to growing speculation about a potential rate cut by the Federal Reserve.
- The US Nonfarm Payrolls fell short of expectations. However, better data and increasing hourly earnings have created uncertainty regarding a potential interest rate cut of either 25 or 50 basis points.
- In spite of the decline in Treasury yields, the US Dollar Index managed to bounce back above 101.00, putting additional pressure on Gold prices.
Gold pulled back after falling short of reaching its record high of $2,531 and dropping by over 0.80% during the later part of the North American session. The latest economic data from the US has raised questions about whether the Federal Reserve (Fed) will proceed with a 50 or 25-basis-point (bps) interest rate reduction at the upcoming September meeting. The XAU/USD is currently trading at $2,493, following a peak of $2,529.
The US Bureau of Labor Statistics (BLS) disclosed that Nonfarm Payrolls (NFP) in August fell short of expectations but showed improvement compared to the revised figure for July. Upon thorough examination of the report, it is evident that the Unemployment Rate experienced a decline in comparison to the preceding month, while there was an increase in Average Hourly Earnings.
Based on the information, the likelihood of interest rate changes by the Federal Reserve experienced significant fluctuations. According to data from the CME FedWatch Tool, traders at one point priced in a 50 basis point cut, with the likelihood increasing to as much as 70%. However, after the commotion subsided, experts in the market predicted that there was a higher probability of a 25 bps reduction, with a 73% chance, compared to a 50 bps reduction, which only had a 27% chance.
Meanwhile, Federal Reserve policymakers made headlines. According to John Williams, the President of the New York Fed, a timely reduction in rates will contribute to maintaining a stable labor market. Fed Governor Christopher Waller reiterated specific points during a lecture at the University of Notre Dame. He stated, “The moment has arrived” to initiate the process of gradually relaxing policy and disclosed his willingness to consider easing measures of any magnitude.
In a recent statement, Austan Goolsbee, the President of the Chicago Fed, expressed a cautious stance, emphasizing that policymakers are in solid agreement about the need to lower borrowing costs.
With all these recent advancements, the price of Gold experienced a decline, even though there was a decrease in US Treasury yields. Recently, the US Dollar bounced back after dropping below 101.00 and increased by more than 0.15%, as indicated by the US Dollar Index (DXY), which is now at 101.22.
In the realm of geopolitics, US Secretary of State Antony Blinken has stated that the Gaza ceasefire agreement is nearly 90% complete. However, there are still important matters that need to be resolved, creating gaps between the parties involved. Both sides must agree on these remaining issues.
Gold Prices Decline as Traders Overlook a Varied US Jobs Report
- The US nonfarm payroll (NFP) rose by 142K in August, falling short of the projected 160K. In addition, the figures for July were revised downwards from 114K to 89K.
- The unemployment rate experienced a slight decrease from 4.3% to 4.2%, while there was an increase in average hourly earnings from 3.6% to 3.8% year over year in August.
- According to data from the Chicago Board of Trade, it is anticipated that the Federal Reserve will reduce interest rates by at least 104 basis points (bps) this year, which is an increase from the previous estimate of 103 bps. This projection is based on the analysis of the December 2024 fed funds rate futures contract.
The Price of Gold Has Fallen Below $2,500 as a result of the Strength of the USD.
The trajectory of gold prices continues to lean towards the positive side, although there appears to be a temporary shift towards the negative in the near term. Following a surge above $2,520, XAU/USD quickly changed direction and displayed a “bearish engulfing” candle chart pattern, indicating the possibility of further declines.
The momentum shifted to a bearish direction, as indicated by the Relative Strength Index (RSI). The RSI is on the verge of dipping below its neutral threshold.
If the XAU/USD falls below the low point of $2,470 on August 22, it could lead to additional downward movement. The next area of interest would be the combination of the April 12 peak, which has now become a level of support, and the 50-day Simple Moving Average (SMA) ranging from $2,435 to $2,431.
Alternatively, should buyers push prices beyond $2,500, the subsequent obstacle would be the highest point reached so far this year, which stands at $2,531. If exceeded, the subsequent milestone to aim for would be the psychological level of $2,550, followed by reaching the $2,600 mark.