Gold price edges up as the post-NFP USD rally falters amid US fiscal concerns
- Gold price regains positive traction and reverses a part of Thursday’s upbeat NFP-inspired losses.
- US fiscal concerns weigh on the USD and lend support to the commodity amid trade uncertainties.
- Holiday-thinned liquidity might hold back the XAU/USD traders from placing fresh directional bets.
Gold price (XAU/USD) attracts some dip-buying during the Asian session on Friday and for now, seems to have stalled its retracement slide from a one-and-a-half-week high touched the previous day. Traders dialled back expectations that the Federal Reserve (Fed) will cut interest rates in July following the release of stronger-than-expected US jobs data on Thursday. This, along with a generally positive risk tone, acts as a headwind for the non-yielding yellow metal.
Investors, however, remain on edge amid persistent uncertainties stemming from US President Donald Trump's trade policies. Furthermore, the US Dollar (USD) bulls remain on the sidelines amid concerns that Trump's 'One Big Beautiful Bill' would worsen the country's fiscal situation. This, in turn, offers some support to the safe-haven Gold price and helps limit the downside amid relatively thin trading volumes on the back of the Independence Day holiday in the US.
Daily Digest Market Movers: Gold price draws support from a combination of factors
- The US Dollar touched a one-week high on Thursday after the US Bureau of Labor Statistics reported that Nonfarm Payrolls increased by 147,000 in June, beating forecasts of 111,000. Adding to this, the Unemployment Rate edged down to 4.1%, from 4.2% in May, and dashed hopes of an early interest rate cut by the Federal Reserve.
- Other details of the report showed that wage growth, as measured by the change in the Average Hourly Earnings, slowed to 0.2% in June from 0.4% previously and retreated to 3.7% from 3.8% in May. This helps to ease inflation concerns and keeps the door open for at least two 25 basis points rate reductions by the end of this year.
- US President Donald Trump’s tax-cut and spending bill cleared its final hurdle in Congress on Thursday. According to the nonpartisan Congressional Budget Office, the legislation will add $3.4 trillion to the nation’s debt. This could further worsen America’s long-term debt problems, which caps the USD and supports the Gold price.
- Meanwhile, Trump said that he plans to start sending letters informing trading partners of their tariff rates as soon as Friday, as negotiations to avoid higher US levies enter the final stretch. His comments come days before the July 9 deadline for steeper reciprocal tariffs and further act as a tailwind for the safe-haven precious metal.
- US markets will be closed on Friday in observance of Independence Day, warranting caution before placing aggressive bets around the XAU/USD amid the holiday-thinned liquidity. Nevertheless, the commodity remains on track to snap a two-week losing streak and the supportive fundamental backdrop favors bullish traders.
Gold price needs to find acceptance above 100-SMA on H4 for bulls to seize control
From a technical perspective, this week's repeated failures to build on the momentum beyond the 100-period Simple Moving Average (SMA) on the 4-hour chart warrant some caution for the XAU/USD bulls. The said barrier is currently pegged near the $3,352-3,355 area and should act as a key pivotal point. This is closely followed by the overnight swing high, around the $3,365-3,366 region, above which the Gold price could aim to reclaim the $3,400 round figure.
On the flip side, the $3,326-3,325 area now seems to protect the immediate downside ahead of the $3,311-3,310 region and the $3,300 round figure. A convincing break below the latter might shift the near-term bias in favor of bearish traders and make the Gold price vulnerable to accelerate the slide to the next relevant support near the $3,270 horizontal zone. The downward trajectory could extend further towards retesting the monthly swing low, around the $3,248-3,248 region.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.