- Gold price struggles to capitalize on the previous day’s modest gains amid mixed cues.
- A modest USD uptick weighs on the commodity, though the downside remains limited.
- Traders keenly await a potential Trump-Xi call and the crucial US NFP report on Friday.
Gold price (XAU/USD) reverses an intraday dip to the $3,361 region and turns neutral during the early part of the European session on Thursday amid a mixed fundamental backdrop. A modest US Dollar (USD) uptick caps the upside for the commodity. However, US fiscal concerns, along with bets that the Federal Reserve (Fed) will lower borrowing costs further in 2025, act as a headwind for the buck and offer some support to the non-yielding yellow metal.
Meanwhile, persistent geopolitical risks and trade-related uncertainties keep investors on edge ahead of potential talks between US President Donald Trump and Chinese President Xi Jinping. This contributes to limiting the downside for the safe-haven Gold price, warranting caution for bearish traders. However, it will be prudent to wait for some follow-through buying before positioning for further gains as traders keenly await US Nonfarm Payrolls (NFP) on Friday.
Daily Digest Market Movers: Gold price traders await Trump-Xi call and US NFP report
- Automatic Data Processing (ADP) reported on Wednesday that US private sector employers added only 37K jobs in May, below consensus estimates and marking the lowest level since March 2023. Adding to this, April’s reading was revised to 60K from 62K reported originally.
- Furthermore, a survey from the Institute for Supply Management (ISM) showed that business activity in the US services sector unexpectedly contracted in May for the first time since June 2024. In fact, the US ISM Services PMI dropped to 49.9 last month from 51.6 in April.
- The rate-sensitive two-year and the benchmark 10-year US Treasury yields fell to the lowest level since May 9 amid bets that the Federal Reserve will cut interest rates in September. Moreover, US President Donald Trump pressed Fed Chair Jerome Powell to lower rates.
- Dovish Fed expectations, along with concerns that the US budget deficit could worsen at a faster pace than expected on the back of Trump’s flagship tax and spending bill, fail to assist the US Dollar in attracting buyers. This lends some support to the non-yielding Gold price.
- The increase in steel and aluminum import tariffs from 25% to 50% came into effect on Wednesday. This comes ahead of the high-stakes call between Trump and Chinese President Xi Jinping and amid renewed fears of a trade war between the world’s two largest economies.
- Trump said that he had spoken again to Russian President Vladimir Putin and that the Kremlin leader vowed to retaliate against the Ukrainian attack Russian bombers. Trump added that a Ukraine ceasefire remained distant, which keeps the geopolitical risk premium in play.
- The US vetoed a United Nations Security Council resolution calling for an immediate, unconditional, and permanent ceasefire in Gaza for the fifth time. Meanwhile, Israeli strikes across Gaza have killed nearly 100 Palestinians in the past 24 hours amid a humanitarian aid blockade.
- Traders now look forward to the release of the usual Weekly Initial Jobless Claims data from the US. Apart from this, speeches from influential FOMC members could provide some impetus in the run-up to the highly-anticipated US Nonfarm Payrolls (NFP) report on Friday.
Gold price could add to weekly gains once $3,385 immediate hurdle is cleared decisively
From a technical perspective, this week’s breakout above the $3,324-3,326 barrier was seen as a key trigger for bulls. Moreover, oscillators on daily/hourly charts are holding comfortably in positive territory and suggest that the path of least resistance for the Gold price remains to the upside. However, it will be prudent to wait for some follow-through buying above the $3,385 region, or a multi-week top touched on Tuesday, before positioning for further gains. The XAU/USD pair might then surpass the $3,400 mark and climb further to the $3,433-3,435 region. The momentum could extend further toward the $3,500 neighborhood or the all-time peak set in April.
On the flip side, the $3,355 area could offer immediate support to the Gold price. Any further slide might continue to attract some dip-buyers and is more likely to remain limited near the aforementioned resistance breakpoint, around the $3,326-3,324 area. Some follow-through selling, however, could make the commodity vulnerable to weakening further below the $3,300 mark and testing the $3,286-3,285 horizontal support.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
