Gold prices (XAU/USD) experienced a decline to near $2,385 early Monday during Asian trading hours, ending a three-day winning streak. This downturn is attributed to a modest rebound of the US Dollar (USD) and the Chinese central bank’s continued pause in gold buying for the second consecutive month. However, ongoing political uncertainties may provide support for the precious metal as a safe-haven asset.
On Friday, the US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls (NFP) increased by 206,000 in June, surpassing expectations of 190,000 but falling short of the revised 218,000 in May. The unemployment rate rose slightly from 4.0% in May to 4.1% in June. Additionally, average hourly earnings grew by 0.3% month-on-month in June, meeting market expectations.
Market participants are currently pricing in a 77% chance of a rate cut by the US Federal Reserve (Fed) in September, up from 70% the previous Friday, according to the CME FedWatch tool. The Federal Open Market Committee (FOMC) minutes revealed that policymakers acknowledged easing price pressures, fueling expectations of Fed rate cuts this year. Such a move could weaken the USD and bolster USD-denominated gold prices.
Geopolitical tensions and political uncertainty, particularly in Europe and the Middle East, could further enhance safe-haven demand for gold. Exit polls from the French parliamentary elections indicated that the left-wing New Popular Front (NFP) is likely to secure the most seats in the second round of voting. Concerns over a potential hung parliament are adding to the uncertainty.
Meanwhile, data from China over the weekend revealed that the People’s Bank of China (PBoC) has not resumed gold purchases for the second month. “Gold prices appear to remain a bit high, and the PBoC is likely waiting for a further pullback before resuming its purchasing program,” stated Nitesh Shah, a commodity strategist at WisdomTree. As China is the world’s largest bullion consumer, this pause in gold buying could exert downward pressure on gold prices.
