The gold (XAU) price experienced a decline of 0.24% on Thursday after reaching an all-time high, driven by expectations of lower US interest rates this year.
Bart Melek, head of commodity strategies at TD Securities, commented, “It looks like the Fed is quite prepared to reduce interest rates at a time when inflation is going to be significantly above their 2% target.” This sentiment has contributed to the substantial boost in gold prices, fueled by relatively high inflation and anticipation of imminent rate cuts. Central bank buying and safe-haven inflows amidst escalating geopolitical tensions have further fueled physical demand for gold, resulting in XAU/USD rising by over 25% since October. However, some analysts anticipate a downward correction.
StoneX analyst Rhona O’Connell remarked, “It’s heavily overbought and needs to be corrected to blow some of the froth. Fed cuts are priced in, in my view.”
During the Asian and early European trading sessions, XAU/USD witnessed a decline. The significant event for the day is the US Nonfarm Payroll report, scheduled for 12:30 p.m. UTC. This report, which includes crucial data such as average hourly earnings and the unemployment rate, is expected to significantly impact investors’ expectations regarding interest rates. Traders will closely monitor various labor market indicators, as a tight job market could reduce expectations for a rate cut in June, potentially leading to a decrease in XAU/USD. Conversely, unfavorable labor market indicators could raise the likelihood of a rate cut, potentially driving gold prices higher. Key levels to watch are 2,265 and 2,293.
