- Gold price attracts some buyers amid the weaker USD on Monday.
- The growing expectations that the Fed will start cutting interest rates later in the year lifted the yellow metal.
- The easing Middle East tensions and risk-on mood might cap the gold’s upside.
Gold price (XAU/USD) snaps the two-day losing streak during the early European session on Monday. The weaker-than-expected US employment reports have boosted the odds of a September rate cut from the US Federal Reserve (Fed). This, in turn, has dragged the US Dollar (USD) lower and lifted the USD-denominated gold. It’s worth noting that a lower interest rate can decrease the opportunity cost of investing in gold, leading to higher demand and price.
On the other hand, the easing fear of geopolitical tensions in the Middle East, particularly the Iran-Israel conflict and the risk-on environment might undermine demand for safe-haven assets and cap the yellow metal’s upside. Gold traders will keep an eye on Fedspeak this week. Fed’s Thomas Barkin and John Williams are set to speak on Monday. The dovish message from Fed officials might further boost the XAU/USD.
Daily Digest Market Movers: Gold price rebounds amid downbeat US data
- The US Nonfarm Payrolls (NFP) rose by 175K in April from 315K in March (revised from 303K), missing the market expectation of 243K.
- The Unemployment Rate rose to 3.9% in April from 3.8% in the previous reading, while the Average Hourly Earnings dropped to 3.9% YoY in April from 4.1% in March.
- The US ISM Services PMI slipped into contractionary territory, falling from 51.4 in March to 49.4 in April, below the market estimate of 52.0.
- Fed Governor Michelle Bowman cautioned that there is a real risk that inflation could remain elevated for much longer than many are expecting, adding that she’s willing to hike rates if inflation stalls or reverses.
- Chicago Fed Austan Goolsbee stated that the latest US employment report was solid, emphasizing that current monetary policy is restrictive.
- Fed easing expectations have adjusted, with the odds of a September rate cut rising to nearly 90%, up from 55% ahead of the NFP report, according to the CME FedWatch tool.
Technical Analysis: Gold price remains confined within a descending trend channel in the near term
Gold price trades on a stronger note on the day. The bullish outlook of the precious metal remains intact, as XAU/USD is above the key 100-day Exponential Moving Average (EMA) on the daily chart.
In the near term, the gold price has remained capped within a descending trend channel since mid-April, suggesting that further consolidation cannot be ruled out. Additionally, the 14-day Relative Strength Index (RSI) hovers around the 50 midline, indicating indecisiveness among market players.
The first upside barrier for the yellow metal will emerge near the 100-EMA at $2,318. A decisive break above the mentioned level would resume the positive outlook in the short term. The next hurdle is seen at the $2,350–$2,355 region, portraying the confluence of a high of April 26 and the upper boundary of a descending trend channel. A bullish breakout above this level will expose the $2,400 mark en route to an all-time high near $2,432.
On the downside, any follow-through selling below the $2,300 psychological mark will see a drop to a low of May 3 and the lower limit of a descending trend channel at $2,275. Further south, the next contention level is located near a low of April 1 at $2,228, followed by the $2,200 round mark.
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the weakest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.53% | -0.30% | 0.19% | -1.12% | -2.82% | -0.97% | -0.84% | |
| EUR | 0.53% | 0.22% | 0.71% | -0.58% | -2.27% | -0.44% | -0.30% | |
| GBP | 0.31% | -0.23% | 0.49% | -0.82% | -2.50% | -0.67% | -0.52% | |
| CAD | -0.19% | -0.72% | -0.49% | -1.31% | -3.01% | -1.16% | -1.03% | |
| AUD | 1.10% | 0.59% | 0.81% | 1.29% | -1.67% | 0.15% | 0.28% | |
| JPY | 2.75% | 2.21% | 2.43% | 2.91% | 1.65% | 1.78% | 1.92% | |
| NZD | 0.96% | 0.43% | 0.65% | 1.14% | -0.15% | -1.84% | 0.13% | |
| CHF | 0.84% | 0.31% | 0.52% | 1.01% | -0.28% | -1.96% | -0.13% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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