Gold Prices Set for Best Week Since Early April, Will NFP Data Take This Away?

Gold, XAU/USD, ISM Data, Technical Analysis – Asia Pacific Brief:

• gold prices Thursday, set for the best week since the beginning of April
• A major disappointment in the ISM Price Paid data boosted the Fed cut rate bets
• XAU/American dollar The technical bias remains bearish due to the bearish death cross

Gold finds momentum amid disappointing US ISM data

Gold prices rose more than 0.7 percent on Thursday, bringing the total gain this week so far to about 1.6. This is set up to be the best week for the yellow metal since the beginning of April. A closer look reveals that XAU/USD has been rising while US dollar and Treasury yields have been weakening, confirming the anti-gold properties of fiat currency.

Over the past 24 hours, US ISM Manufacturing posted 46.9 for May, below the estimate of 47. But what was even more surprising was that prices paid crossed wires at 44.2, well below the forecast of 52.3. A reminder that values ​​less than 50 indicate contracting activity and vice versa. Effectively, the data confirmed that the cyclical component of the economy continues to contract.

Now, prices appear to be heading lower, adding fuel to the story that inflation may continue to weaken in the near term. As a result, the financial markets quickly cut interest rates from the Federal Reserve, thus lowering yields and lowering the currency. Wall Street absolutely rejoiced at the news, as the Nasdaq 100, S&P 500, and Dow Jones rose strongly.

This is the current market environment we find ourselves in given that the central bank has signaled a pause, with the near-term path remaining highly data dependent (this includes both the potential for upsides and downsides). Once upon a time, the central bank’s favorite measure of inflation raised the bets for a rate hike, and today the ISM data is pouring cold water on them.

Given the remaining 24 hours, the Asia-Pacific trading session lacks significant economic event risk. Instead, gold will be heavily anticipating the US Nonfarm Payrolls data which is due for release at 12:30 GMT. Understand that another strong print may reverse the market reaction seen on Thursday if it prompts traders to consider the possibility of further Fed tightening, again reducing the appeal of gold.

Technical analysis of gold

Gold prices are facing the next critical technical hurdle on the daily chart below. A bearish death cross between the 20 and 50 day simple moving averages recently formed, providing a bearish technical bias. Prices rose to the 20-day line, which could hold as resistance, with the 50-day equivalent shortly thereafter. As such, these can bring back negative focus. It seems that the main support will be in 1936.

XAU/USD daily chart

Chart created in TradingView

– By Daniel Dubrovsky, Chief Strategist for DailyFX.com