Despite the fluctuating course in the markets, the gold price is struggling to find direction. On the other hand, gold continues to trade between important technical levels against the dollar. The upcoming July jobs report from the US will be the next big catalyst for the yellow metal.
How did the gold price move?
Gold price made a U-turn in the second half of the week, climbing above $1,980. Afterwards, it fell to $1,950 as optimistic data releases from the US countered market expectations that the Federal Reserve policy rate would remain unchanged for the rest of the year.
However, XAU/USD erased most of its weekly losses on Friday as the US Dollar (USD) lost its appeal. The upcoming July jobs report from the US will trigger the next big move in XAU/USD next week.
What happened last week?
Markets started the week calmly as participants avoided taking large positions before the Fed’s policy announcements. S&P Global PMI surveys pointed to a situation. Accordingly, in June, it showed that the US economy was in better shape than the Eurozone and UK economies. Thus, USD caught capital outflows from Euro and Sterling. By contrast, XAU/USD has come under modest bearish pressure.
On Tuesday, monthly data from the Conference Board revealed that the Consumer Confidence Index rose to 117.00 in July from 110.1 in June. The Current Situation Index rose from 155.3 to 160.0 and the Consumer Expectations Index rose from 80 to 88.3. These readings allowed the USD to hold its ground.
Fed rate decision
The US Federal Reserve (Fed) announced its interest rate decision after its July policy meeting. As expected, it increased the policy rate by 25 basis points to the 5.25-5.5% range. The US central bank made little change in its policy statement compared to June. On the other hand, it failed to trigger the market reaction.
At the post-meeting press conference, it was noteworthy that Chairman Jerome Powell said that the policy is currently restrictive. In addition, refraining from confirming a new rate hike later in the year triggered a sharp decline in US Treasury bond yields. “If we see inflation convincingly falling, we may go down to neutral at some point and then below neutral,” Powell said. said. As a result, XAU/USD gained bullish momentum and settled above $1,980.
Gold made a comeback
But on Thursday, the dollar made an impressive comeback. Accordingly, the 10-year US Treasury bond yield rose above 4% after strong data releases from the US. US Real Gross Domestic Product (GDP) expanded by 2.4% year-on-year in the second quarter. Thus, it exceeded the market’s 1.8% growth expectation by a large margin. Also, Durable Goods Orders increased by 4.7% in June. Accordingly, weekly Initial Unemployment Claims decreased from 228,000 to 221,000.
Investor sentiment quickly changed after the US data. Markets reassessed the Fed’s interest rate outlook. Because Powell made an assessment in his statement on Wednesday. Accordingly, “stronger growth over time will contribute to inflation and will require a policy response,” he said. As a result, the Gold price dropped below $1,950. It wiped out all its post-Fed gains on Thursday.
Friday’s data
Inflation, measured by the change in the Personal Consumption Expenditure (PCE) Price Index, fell to 3% year-on-year in June from 3.8% in May, the US Bureau of Economic Analysis reported on Friday.
The annual Core PCE Price Index, the Fed’s preferred inflation indicator, fell to 4.1% from 4.6% in May. These data caused US bond yields to decline ahead of the weekend. It also helped XAU/USD retrace some of its weekly decline in the American session on Friday.
Next week
NBS Manufacturing PMI and Non-Manufacturing PMI data will come from China, the world’s largest gold consumer, in the early Asian session on Monday. A reading above 50 on the Manufacturing PMI should help XAU/USD start the week on a solid basis.
On Tuesday, ISM Manufacturing PMI and JOLTS Jobs data will be on the US economic agenda. ISM Manufacturing PMI was below 50 for the eighth consecutive year in June. It should come as no surprise that the PMI survey shows continued contraction in the economic activity of the manufacturing sector unless there is a significant decline towards 40.
Data to be announced on Wednesday and other days
The ADP private sector employment report will be released on Wednesday, and the ISM Services PMI on Thursday. On Friday, the U.S. Bureau of Labor Statistics will release its July employment report. Non-Farm Employment (NFP) is expected to increase by 184,000 in July, after an increase of 209,000 in June. A figure close to 200,000 would be good enough for the Fed to consider further tightening in policy without worrying too much about a significant rise in the Unemployment Rate. However, if the NFP comes in below 150,000, dovish Fed expectations will put pressure on yields. It will also allow the Gold price to rise before the weekend. Please note that market expectation for NFP may change as we approach the data to be released.
To sum up, XAU/USD faces a two-way risk in the short term. A sudden drop in US data will revive expectations that the Fed will keep the policy rate unchanged this year. It will also trigger a rise in the Gold price. On the other hand, if the US economy proves to be resilient and labor market conditions remain tight, markets will more strongly price the possibility of a rate hike in November or December. In this scenario, XAU/USD will have a hard time recovering from bearish pressure.
Gold technical view
The Relative Strength Index (RSI) indicator on the daily chart dropped to 50 on Thursday. Then it started to rise. This shows that investors are reluctant to bet on a steady decline in the price of Gold. On the upside, the 100-day Simple Moving Average (SMA) is important. Also, the 20-week SMA is forming a strong resistance at $1,970. Although XAU/USD closed above this level in the middle of the week, it failed to hold there. Hence, buyers can wait for this level to be confirmed as support. In this case, $1,980 sits as intermediate resistance ahead of $2,000.
When we look at Kriptokoin.com, the forecast surveys point to a slight downward trend in the near term. It also points to the $1,953 level for gold. The one-month outlook remains bullish. Some of the experts surveyed expect the price of Gold to reach $2,000 in this time frame.
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