Gold (XAU/USD) took a breather on Monday after experiencing a nearly three and a half percentage point decline on Friday, triggered by the release of better-than-expected US Nonfarm Payrolls (NFP) data. The precious metal hovered just above $2,300 amidst a varied market mood.
The optimistic portrayal of wage and employment conditions in the United States, as depicted by the employment data on Friday, prompted a significant reassessment of US interest rate expectations. The Federal Reserve (Fed) is now anticipated to prolong its maintenance of elevated interest rates, a development that immediately impacted Gold’s performance by increasing the opportunity cost of holding the non-yielding asset, thereby diminishing its appeal to investors.
Gold’s Bearish Tone Deepens Following Upbeat US Employment Figures
Gold’s short-term bearish trend persisted towards the end of last week, catalyzed by the US NFP data revealing a substantial rise of 272,000 new workers joining the economy in May, surpassing economists’ forecasts of 185,000 and surging from a downwardly revised 165,000 in April.
In addition to surpassing expectations, the data indicated a 4.1% year-on-year increase in Average Hourly Earnings for May, exceeding the anticipated 3.9% and surpassing the upwardly revised 4.0% in April. This upward trajectory in earnings suggests a potential surge in consumer spending, consequently amplifying inflationary pressures.
Market expectations regarding a potential Fed rate cut in September dwindled to just over 50% following the release of the NFP data, down from 67% previously, as reported by the CME FedWatch tool, which derives its estimates from 30-day US Fed Fund Futures pricing data.
Despite these factors, Gold prices find support from the divergent outlook for global interest rate expectations, which remain subdued. The Bank of Canada (BoC) and the European Central Bank (ECB) both reduced their overnight rates by 0.25% last week, while lower inflation data in Switzerland has fueled speculation of a potential interest rate cut by the Swiss National Bank (SNB) at its June 20 meeting, following an initial cut in March.
Gold Traders Await Federal Reserve Meeting and US CPI Data
Gold traders are eagerly awaiting further signals on price direction at the conclusion of the Federal Reserve June meeting on Wednesday, as well as the release of US Consumer Price Index (CPI) data for May earlier the same day.
Diminished Appetite for Gold in Asia
Gold faced additional pressure towards the end of last week after official data revealed that the People’s Bank of China (PBoC) ceased its gold purchasing activities in May, marking the end of an 18-month buying spree by the central bank. This data follows robust buying in April, which propelled China’s gold reserves at the PBoC to an all-time high, accounting for 4.9% of total reserves, following 18 consecutive months of growth.
