On their way to consolidate weekly losses, gold buyers take a break.
Despite mixed data, the bulls are supported by growth expectations and sluggish yields.
The IMF and Fedspeak have sent the DXY to a new three-month high.
This Week’s Chart: Gold collides with a significant milestone
In the first Asian session on Friday, gold (XAU/USD) struggles to extend the two-day bounce off crucial support around $1,780, edging higher around $1,776. Even as economic recovery prospects back the gold buyers, the yellow metal’s rebound advances diminish amid pre-US Nonfarm Payrolls (NFP) worry.
In June, the US ISM Manufacturing PMI fell slightly from 61.00 projected and 61.2 prior readings to 60.6. This information is combined with information on the employment component, which fell to 49.9 percent while the prices-paid sub-component increased to its highest level since 1979. Last week’s initial claims decreased to 364K, bringing the four-week average down to 392.75K, putting a damper on expectations for a robust NFP print in June, which is predicted to jump from 559K to 690K.
Read: NFP Predictions: There are four reasons why the June jobs data could be a downer for the currency.
Apart from the mixed data, the coronavirus outbreaks in Asia-Pacific are also a source of concern for gold bulls. The latest covid updates from Australia appear to be promising, as the number of new cases has decreased to 33 from 49 previously. Also encouraging is the nation’s vaccination rate, which has lately increased to 8.0 percent fully immunized, up from 4 percent just a few days ago. This aids Queensland’s efforts to lift local lockdowns in some areas. In other news, Indonesia declared a state of emergency from July 2 to 20, while illnesses in Malaysia and Thailand have also become a market worry.
Nonetheless, policymakers at the Federal Reserve of the United States and the International Monetary Fund (IMF) are upbeat. President Patrick Harker of the Philadelphia Federal Reserve Bank recently told the Wall Street Journal that he supports the commencement of bond-buying tapering later this year. Following that, the IMF raised its prediction for US GDP growth from 4.6 percent in April to 7.0 percent in May. According to Bloomberg, the global institute also hinted at a Fed rate hike in late 2022.
In the midst of these moves, Wall Street benchmarks rose, with the S&P 500 setting a new high for the sixth day, while US Treasury rates remained moderately bid. Furthermore, the US dollar index (DXY) soared to a new high for the month of April the day before, but is still waiting for further signs to move farther north by press time.
Firmer NFP will pave the way for monetary policy adjustments and put a safe-haven buy under the US currency, which might impact on gold prices, given the growing likelihood of the Fed’s action amid greater inflation. In the event that NFP drives the greenback down, bulls are already exercising their biceps and may breach the immediate negative trend channel.
Despite retaining the rebound off the important horizontal support from March, gold is still trapped inside a two-week-old falling trend channel.
Gold prices may prolong their recent recovery moves, given the metal’s extended upward beyond near-term critical support and the MACD’s diminishing bearish bias. Multiple obstacles to the north, however, necessitate a strong fundamental drive to support the bulls.
However, the indicated channel’s resistance line, which is approaching $1,783, functions as an immediate upside hurdle, ahead of the 100-DMA level of $1,790.
If gold buyers can break over the $1,790 resistance, the $1,800 threshold and mid-May lows near $1,809 can be used to test the upside ahead of the 50 and 200-DMA convergence near $1,830-35, which could be a trend-changer for broken.
Alternatively, the indicated horizontal line around $1,755 and channel support near $1,746 will come before the April 13 low of $1,723 to keep gold sellers at bay. The $1,700 round figure, as well as the double bottom around $1,675 from earlier in the year, will be key to watch after that.
Pullback is projected as a trend./n
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