Recovery hopes fade ahead of key US events

  • Gold ended the week in the red despite a late rebound on Friday.
  • The technical outlook shows that the bearish bias remains intact in the short term.
  • Next week’s calendar will feature FOMC minutes and US nonfarm payrolls data.

The price of gold ended the first four days of the week in negative territory and touched its lowest level since late January below $1,790 on Friday before rising back above $1,800. Renewed dollar strength amid risk aversion weighed on XAUUSD and caused it to close the third consecutive week in negative territory. Ahead of next week’s highly anticipated US jobs report, gold will likely struggle to stage a convincing rally.

What happened last week?

The price of gold failed to gain support on Monday, despite news that four G7 members have decided to ban new imports of Russian gold. According to the World Gold Council, Russia is the second largest producer of gold in the world with 330.9 tons in 2021. Meanwhile, from a macroeconomic point of view, data from the United States showed that orders for goods Durables rose 0.7% in May, compared to the market expects a rise of 0.1%.

On Tuesday, gold fluctuated in a relatively tight range near $1,820 but ended up posting small daily losses. The Conference Board reported Tuesday that the consumer confidence index in the United States fell to 98.7 in June from 103.2 in May. The publication further revealed that the consumer’s one-year inflation rate expectation has climbed to 8% from May’s revised 7.5%. With the US Dollar Index turning north after this report, gold continued to decline slightly.

During his speech at the European Central Bank’s Annual Forum on Central Banks on Wednesday, FOMC Chairman Jerome Powell reiterated that the US economy can withstand policy changes and noted that dollar strength is “disinflationary.” at the margin”. Major Wall Street indices suffered heavy losses following Powell’s hawkish remarks and the dollar continued to find demand as a safe haven.

On Thursday, the US Bureau of Economic Analysis reported that the Personal Consumer Expenditure (PCE) price index remained unchanged at 6.3% on an annual basis in May. The annual Core PCE price index, which the Fed uses as its preferred indicator of inflation, fell to 4.7% from 4.9% in the same period as expected. Despite the relatively weak PCE inflation report, month-end flows failed to allow gold to capitalize on falling US Treasury bond yields.

On Friday, the Dollar continued to outperform its rivals in a risk-averse market environment and technical downside pressure intensified as gold fell below the key $1,800 level in the European session. The latest data release of the week showed business activity in the US manufacturing sector expanded at a much slower pace in June than it did in May, with the ISM manufacturing PMI rising from 56.1 to 53. The benchmark 10-year US Treasury bond yield fell more than 7% after the disappointing PMI survey and helped XAUUSD limit its losses.

Next week

Caixin Services PMI data from China will be reviewed on Tuesday for further impetus. Earlier in the week, the bullish Chinese manufacturing PMI did not help gold find demand. Therefore, this report is unlikely to have a noticeable impact on the valuation of gold.

On Wednesday, the ISM Services PMI will be featured in the US economic record. Later today, the FOMC will release the minutes of its June policy meeting. According to CME Group’s FedWatch tool, markets are currently pricing in a 66.5% chance of another 75 basis point (bp) Fed rate hike in July, up from 84% a week ago. . In case the FOMC release increases the odds of a 75 basis point rally, gold could face further downside pressure. On the other hand, a dovish tone could weigh on the dollar and open the door to a rebound.

Finally, the US Bureau of Labor Statistics will release nonfarm payrolls (NFP) data for June on Friday. The labor market is expected to show a loss of growth momentum in June, with the NFP increasing by 250,000 after May’s increase of 390,000. Investors will also pay close attention to wage inflation data. On an annual basis, the average hourly wage should increase by 5.2%, as in May. Unless there is a negative surprise in the NFP print, higher than expected wage inflation growth could boost the greenback and vice versa.

It should be noted that gold’s inverse correlation with the yield of 10-year US Treasury bonds continued to weaken this week. Markets may reassess the inflation outlook and become more optimistic that inflation has already peaked. This could explain how gold, as a traditional inflation hedge, and US yields have fallen in tandem this week. Therefore, any comments or market moves indicating an easing of price pressures could trigger a similar market reaction.

Gold Technical Outlook

The Relative Strength Index (RSI) indicator on the daily chart remains near 40, suggesting that gold remains bearish and has more room on the downside before becoming technically oversold. The sellers, however, might stay on the sidelines until XAUUSD closes daily below $1,800 (psychological level). In this scenario, $1,780 (static level) lines up as the next downside target ahead of $1,767 (static level).

On the upside, $1,810 (static level, former support) lines up as the first technical hurdle ahead of $1,832 (20-day SMA). The descending trendline from early March remains intact and forms a strong resistance at $1,840, where the 200-day SMA is located.

Gold Sentiment Survey

The majority of experts polled by FXStreet expect gold to enter a consolidation phase next week. The 1-month outlook paints a mixed picture, with the average target standing at $1,790.

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