Gold Price Forecast: XAU/USD soars on dismal US jobs data, prompting a reevaluation of Federal Reserve’s stance
The price of gold has advanced by almost 1% as the US Dollar (USD) experiences a downfall across the board. This decline in the USD comes as US Treasury bond yields plummet following disappointing data that has caused investors to lower their expectations for additional rate hikes by the US Federal Reserve (Fed). As a result, XAU/USD is currently trading at $1,937.89 per troy ounce, having reached a low of $1,914.57 earlier in the day.
XAU/USD rises to $1,937.89 amidst reduced likelihood of a September Fed rate hike and falling US Treasury yields
According to data released by the US Bureau of Labor Statistics (BLS), July’s Job Openings fell significantly short of expectations, coming in at 8.827 million compared to the estimated 9.465 million and June’s 9.165 million. Additionally, the quits rate showed a decline, suggesting that Americans are growing less confident about their prospects of finding new employment.
Simultaneously, further data revealed that the Consumer Confidence poll conducted by the Conference Board (CB) indicated a worsening sentiment, as evidenced by August’s report. The figures stood at 106.1, significantly lower than the projected 116 and July’s 114. This decline underscores consumers’ increasing sense of unease. Dana Peterson, the chief economist at the Conference Board, commented, “Consumers are becoming increasingly concerned about rising prices, particularly for groceries and gasoline.”
It is important to note that the labor market in the US is gradually easing, albeit not at the pace initially anticipated by the Federal Reserve. The comments made by Powell regarding the tightness of the job market, which supported rate hikes, may be reconsidered at the upcoming September meeting. Nonetheless, caution is advised due to the approaching US Nonfarm Payrolls report for August, which is estimated to show an increase of around 170,000 jobs. Any unexpected surge could prompt volatility in financial markets as traders revise their expectations for additional rate hikes by the Federal Reserve.
The CME FedWatch Tool currently shows diminishing odds of a rate hike in the 5.50%-5.75% range at the September meeting, with a probability of only 13.5%. However, the odds for a rate hike at the November meeting remain around 43.3%.
Consequently, the US Dollar remains weak, as reflected in the performance of the US Dollar Index (DXY), which measures the value of the USD against a basket of six major currencies. The DXY stands at 103.433, marking a 0.53% decline. The decline in US bond yields, which is a reflection of traders’ expectation of a less aggressive Fed, has added to the weakening of the US Dollar.
Meanwhile, across the pond, the market is awaiting the release of the US ADP Employment Change for August and the Personal Consumption Expenditures (PCE) Prices for the second quarter of 2023.
XAU/USD Price Analysis
From a technical standpoint, the price of gold appears to be on track to test the 100-day Simple Moving Average (DMA) at $1,956.31 after reclaiming the 20 and 50-DMAs. However, it is important to note that XAU/USD is currently testing a four-month-old downward resistance trendline, which was previously tested on July 27. Despite multiple attempts, gold has been unable to break through this trendline and has instead dropped to fresh 5-month lows of $1,885.09. If this level is breached, the 100-DMA will be exposed. On the other hand, the first level of support is expected at the 50-DMA at $1,929.94, followed by the 20-DMA at $1,914.30, before potentially challenging the 200-DMA at $1,912.94.