Gold has experienced gains due to a weakening US dollar since late June, but prices are more likely to dip below $2,300 rather than rally to all-time highs in the near term, according to Alex Kuptsikevich, Senior Market Analyst at FxPro.
“Gold has lost 0.9% since the start of Monday, almost returning to the levels seen before Friday’s jobs data release,” Kuptsikevich stated in his analysis published on Monday. “The initial market reaction to the data indicated that key participants are ready to sell.”
Kuptsikevich pointed out that gold’s recent strength is primarily a result of the US dollar’s decline, with the greenback dropping by 1% since late June. “Weak employment figures also boosted gold prices on Friday, leading to a weaker dollar and accelerating expectations for rate cuts,” he added. “However, the momentum of the 0.8% decline in gold immediately after the data release is noteworthy.”
He described the market reaction as a classic ‘worse is better’ scenario, where weak labor market data increased expectations of an imminent rate cut, thereby boosting risk appetite. “But this is a very unsustainable play,” Kuptsikevich warned, “as not all negative macroeconomic factors are disinflationary. In fact, wage growth (4.1% year-over-year) surpassed inflation (3.3% year-over-year), and previous months’ hiring figures were revised downward, with the unemployment rate hitting a 31-month high.”
This suggests that the US economic situation is deteriorating faster than inflation is slowing. “In this case, a rate cut would aim to support economic growth rather than alleviate excessive monetary tightness,” he explained. “The chances of a rate cut for ‘bad’ reasons are increasing, which negatively impacts risk appetite in the medium term.”
On the technical front, Kuptsikevich noted that gold faces strong resistance at $2,390 per ounce, the same level that triggered a local reversal in April. “Further improvement in global financial market risk appetite cannot be ruled out and may be bolstered by the reporting season,” he said. “Gold’s ability to strengthen above $2,390 could signal a fresh attempt at historical highs near $2,450.”
In the near term, however, Kuptsikevich anticipates increasing pressure on gold prices. “We see the 50-day moving average at $2,340 as the first significant marker,” he said. “If this line is breached without strong bullish resistance, the price could quickly drop to the $2,300 area, which is crucial for determining future dynamics. Falling below this level would break the bullish trend established since October, when the Fed first signaled its readiness to cut rates.”
Spot gold last traded at $2,355.21, down 1.52% on the daily chart.
