Gold price is trading within a rather tight range for the third session in a row. Following the strong US jobs data released on Friday, the bulls lacked enough momentum to break resistance at the critical zone of $1,750. The figures will remain at the back of investors’ minds as they wait for the inflation data scheduled for release mid-week. While the precious metal may remain under pressure in the short term, it is likely to find its bottom in the foreseeable future.
The US job market remained strong in June; an aspect that substantiates the need for the Federal Reserve to continue with the aggressive tightening of its monetary policy. Nonfarm payrolls rose by 372,000; surpassing the analysts’ forecast of 268,000. Nonetheless, it dropped subtly from May’s revised figure of 384,000.
At the same time, the average hourly earning exceeded the expected 5.0% YoY to 5.1%. Granted, this was a decline from the prior month’s 5.3%.
The data will remain at the back of investors’ minds as they eye the US inflation data scheduled for release in the new week. In particular, the country’s Bureau of Statistics is set to release the CPI data for May. Analysts expect the headline CPI to record a growth of 8.7% YoY compared to the prior month’s 8.6%.
The market appears to have already priced in a negative scenario where the labor market remains strong and inflationary pressures heightened. Subsequently, lower-than-expected consumer price figures may offer gold price the much needed breather from its downtrend.
Where to next for gold price?
Both the fundamental and technical indicators signal that gold price may remain on a downtrend in the short term. Bets that the Federal Reserve will continue to approve aggressive interest rate hikes has led to a strong US dollar while weighing on the precious metal. On a daily chart, it remains below the 25 and 50-day exponential moving averages.
The Federal Reserve has four more opportunities before the end of the year to approve aggressive rate hikes. Based on June’s meeting minutes, FOMC is ready to enact another super-sized interest rate hike of 75 basis points in July and probably in September even if it slows down the economy.
While such an environment will continue to strengthen the US dollar, recession woes have meant that investors holding gold are unwilling to let go of their positions. Subsequently, I expect gold price to find its bottom in the short term.
In particular, $1,718.91 is the support level to look out for in the immediate term. Negative economic data and the subsequent strengthening of the US dollar may place the support zone at the psychological level of $1,700. That level will likely offer steady support to gold price; triggering the much-anticipated rebound.