Gold prices dipped by 0.4% during the North American session due to a stronger US Dollar and falling US Treasury bond yields. This occurred after the release of weak US jobs data in April, leading investors to focus on potential adjustments by the Federal Reserve in September. The XAU/USD trades at $2,315 after the release of softer economic data, including an April Nonfarm Payrolls report that missed estimates and March figures. The CME FedWatch Tool showed increased odds for a quarter percentage point cut in September following the data release.
Despite the increased odds for a Fed rate cut, recent hawkish comments by Minneapolis Fed President Neel Kashkari suggested the Fed might stand put on interest rates, which bolstered the Greenback. The economic docket for the week will focus on further Fed officials’ comments, along with key data releases such as Initial Jobless Claims and the University of Michigan Consumer Sentiment index. The focus remains on when the Fed will ease policy following the weaker economic data.
Gold prices fell amid lower US Treasury yields and a strong US Dollar, with the US 10-year Treasury note yielding at 1.457%. The US Dollar Index (DXY) rallied 0.52% to 105.42, following weak US jobs data in April. The gold advancing has been due to expectations of major central banks reducing rates, along with renewed fears of conflict in the Middle East. The People’s Bank of China continued to accumulate Gold for the 18th straight month.
Technical analysis shows that gold’s uptrend remains intact despite a retreat below $2,320 on Tuesday. The Relative Strength Index (RSI) suggests momentum favors buyers, where a dip below $2,300 could put pressure on bulls, while a rise above resistance levels could push the price higher. The Fed’s monetary policy, which focuses on achieving price stability and full employment, impacts interest rates, inflation, and the US Dollar.
The Federal Reserve holds eight policy meetings a year where the FOMC assesses economic conditions and makes monetary policy decisions. In extreme situations, the Fed may resort to Quantitative Easing (QE) to increase the flow of credit in the financial system. QE usually weakens the US Dollar and is used during crises or low inflation periods. Quantitative Tightening (QT) is the reverse process of QE, aimed at tightening monetary policy by not reinvesting the principal from maturing bonds. QT is usually positive for the value of the US Dollar.
