Gold Price Recovery Runs Out of Steam as Red-Hot US Jobs Data Boosts Yields

Gold price forecast:

• gold prices Declining as Treasury yields rose after strong payroll data in the United States
• The US economy added 339,000 jobs in May, beating estimates by a wide margin
• A strong and resilient labor market may prompt the Federal Reserve to continue raising interest rates as summer approaches

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Gold futures fell on Friday, dropping about 0.7% to $ 1,981 in late morning trading in New York as the weekend approached, halting the recent recovery, affected by higher rates and the strength of the US dollar after the explosive growth in non-farm payrolls in United State.

For context, the latest US Employment Survey showed that the country added 339,000 jobs in May, well above the consensus estimate of 190,000 jobs. The strong report boosted Treasury yields across the curve, especially those ahead, with the two-year note up nearly 14 basis points, to 4.47%.

A remarkably strong labor market may prompt the Federal Reserve to continue raising borrowing costs in the coming months as part of its fight to curb sticky inflation. It is also possible for monetary policy to remain tight for an extended period of time in response to the flexibility of the economy.

Related: Gold prices are at risk of a deeper correction due to higher real yields, and a stronger US dollar

While policymakers have indicated they would favor keeping interest rates steady at the June FOMC meeting to assess the late effects of cumulative tightening, the pause may be temporary, with the Bank resuming rate hikes at subsequent meetings.

The possibility of seeing one or two more hikes, along with higher interest rates for longer, would be a headwind for non-yielding assets, complicating the near-term outlook for gold. Against this backdrop, the XAU/USD pair may make a deeper decline before stabilizing later this year.

In terms of technical analysis, gold prices are standing above the support near the $1,975 level after Friday’s decline. If this floor collapses, sellers may be emboldened to launch an attack on the $1,950 trend line support. In the event of a rebound from the current levels, we see resistance at $2000, followed by $2050.

Gold price chart

Gold futures chart prepared using TradingView