XAU/USD Performance Contingent on NFP Data

Key Talking Points:

  • Gold builds momentum as PCE data disappoints
  • NFP data to offer important information about Fed guidance

GOLD TAKES ADVANTAGE OF WEAKER YIELDS

Gold is attempting to bounce back from the $100 drop last week but is struggling to get a foot in the door. Friday’s PCE reading saw gold prices turning higher but there is still a lack of momentum for buyers to achieve a meaningful move higher.

PCE data is the Federal Reserve’s preferred method of measuring inflation, for which it sets a 2% target. Friday’s reading saw prices jump 3.4% year on year in the month of May, the largest reading since 1992. Although a sign that the economy is running hot, the reading was in line with expectations and therefore a disappointment for inflation bulls that believe the Fed is making a mistake in keeping current policy unchanged.

Gold has been acting like a hedge against the central bank’s inaction when it comes to controlling inflationary pressures, and that’s the main reason why it saw such a large drop last week on the back of the Fed’s first acknowledgment that they may need to act sooner than later. Friday’s data confirmed that inflation is indeed a risk going forward but the lack of upside surprise in the data allowed gold to recover some support.

With a quieter week on the calendar front, next week will likely see gold consolidate as investors position themselves on the inflation spectrum. Friday will see Non-farm payroll data for June so we may see some price action heading into the end of the week. Fed Chairman Powell has already commented how he would like to see the jobs market pick up before the central bank makes any changes to policy, so Friday’s figures will be important given the last two disappointing readings.

Analysts are expecting 675k jobs to have been added in June. A reading above this level would likely be bearish for gold on the back of greater risks of a hawkish Fed, whilst a lower number would likely be bullish for gold.

XAU/USD KEY LEVELS:

The daily chart is showing how gold is struggling to break free from the range seen back in April. The precious metal is likely to continue struggling to break above the 1,800 level during the start of this coming week as bullish momentum attempts to consolidate. A move higher would be significant if held above 1,810 but would then likely face renewed resistance at the 38.2% Fibonacci (1,827). Short-term support is likely to hold above 1,760.

XAU/USD Daily Chart

Source: Refinitiv

Fibonacci Confluence on FX Pairs

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— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin