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XAU/USD Faces Uphill Battle

7 June 2023

The gold price (XAU/USD) continues to face downward pressure, sliding below $1,950, despite briefly halting its three-week downtrend with minor gains. The recent release of strong United States Nonfarm Payrolls (NFP) figures, which favored Federal Reserve hawks, has weighed on the precious metal. However, the employment details of the report revealed a mixed picture, limiting the extent of the gold price’s decline. As the week progresses, the gold price forecast predicts some support, but it faces significant challenges ahead.

The gold price experienced its largest daily slump in a month following the release of stronger-than-expected US Nonfarm Payrolls (NFP) data, which bolstered the Federal Reserve’s position.

The headline NFP figure for May showed a jump of 339K, surpassing the market’s expectations of 190K. Despite this positive development, other aspects of the report raised concerns. The Unemployment Rate also rose to 3.7% from the previous 3.4%, contrary to market forecasts of 3.5%. Additionally, Average Hourly Earnings eased while the Labor Force Participation Rate remained unchanged.

Policymakers’ Actions and Global Factors Impacting Gold Price

The strong US NFP report suggests a downside bias for the gold price. However, the ability of United States policymakers to avoid a “catastrophic” default situation remains a key consideration for investors. The passing of the debt-ceiling bill in the US House of Representatives and Senate, reaching US President Joe Biden’s desk for signing before the June 5 deadline, has averted a default scenario. However, global rating agencies remain cautious, with Fitch Ratings maintaining a negative watch on the United States “AAA” credit rating.

In addition to policymakers’ actions, geopolitical factors, particularly tensions between the US and China, are impacting the gold price.

Concerns over Taiwan have added to the likelihood of a 25 basis points (bps) increase by the Federal Reserve in June, further pressuring the precious metal. On a positive note, central banks around the world are increasingly hedging against the US dollar by accumulating more gold, signaling long-term support for the commodity.

Gold: Technical Analysis and Future Outlook

From a technical perspective, the gold price faces a bumpy road ahead. Despite successfully breaking through a 12-day-old horizontal resistance at $1,985-87, the outlook remains uncertain. The Relative Strength Index (RSI) stays below the 50.0 level, indicating bearish sentiment. Moreover, there is a strong support near the $1,937-32 range. It includes an 11-week horizontal support zone and a previous resistance line from early May.

Should the gold price break below the aforementioned support zone, it will encounter further hurdles, including the 61.8% Fibonacci retracement level near $1,913, the psychological round figure of $1,900, and the mid-March swing low around $1,884. Conversely, if the XAU/USD manages to overcome the current resistance levels around $1,985-87, it could face additional challenges at the 200-bar SMA level near $1,990 and the psychological barrier of $2,000.

Traders Eye Data Releases and Risk Catalysts for Clarity on Gold Price Direction

The gold price remains under pressure despite a brief halt to its downtrend. The impact of the strong US NFP figures is being tempered by mixed employment details and geopolitical uncertainties. The gold Price may find some support due to the avoidance of a default scenario by US policymakers. Besides, the increasing interest from central banks in accumulating gold. However, technical analysis suggests a challenging path for the XAU/USD, with limited downside potential.

Traders will closely monitor upcoming data releases, including China inflation figures and other risk catalysts, to gain a clearer direction on the gold price’s future movements.


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