Gold Price Forecast: Facing Fourth Weekly Loss Ahead of US Nonfarm Payrolls

Highlights

• Gold prices set for fourth consecutive weekly loss on strong U.S.private payrolls data.
• Investors predict interest rates of 5.25-5.5% for 2023, delaying rate cuts until 2024.
• Surge in U.S. bond yields impacting gold prices ahead of nonfarm payrolls report. 

Overview

Comex Gold prices inched up on Friday but were set to record a fourth consecutive weekly loss due to robust U.S. jobs data, which fueled expectations of higher interest rates by the Federal Reserve. The strong labor market indicated a potential increase in rates, dampening the appeal of gold as an investment.

While gold experienced a slight decline of around 0.2% for the week, investors predicted interest rates to be in the range of 5.25-5.5% for 2023, with the possibility of rate cuts not occurring until 2024, according to CME’s Fedwatch tool.

Recent data revealed a rise in new claims for unemployment benefits, but also showed a significant surge in private payrolls for June. ADP’s employment report indicated a jump of 497,000 private sector jobs, surpassing the Dow Jones consensus estimate of 220,000. This figure also exceeded the 267,000 gain reported in May.

Although the ADP data is considered less reliable than other jobs data, it precedes the official June payrolls report scheduled for release on Friday. Economists polled by Dow Jones anticipate the addition of 240,000 non-farm payrolls for June, which is lower than the 339,000 jobs added in May.

Pressured by Strong Dollar, Higher Yields

The strength of the U.S. economy, reflected in a robust U.S. dollar and an increase in U.S. bond yields, has weighed on the prices of both gold and silver. Short-term traders and speculators have lost confidence in their predictions of a swift reversal in U.S. monetary policy, while selling from safe-haven seekers has intensified.

Nonfarm Payrolls to Set Near-Term Tone

Investors are now eagerly awaiting the Labor Department’s employment report to gain further insight into the Fed’s potential strategy. Federal Reserve Chairman Jerome Powell recently emphasized the continued strength of the labor market as a key driver behind the central bank’s stance on the necessity for further restrictions to cool the economy.

The forthcoming data will play a crucial role in shaping the Fed’s future interest rate policy decisions, particularly the pace at which rates may be increased. Powell’s comments last week, not ruling out the possibility of consecutive rate hikes, marked a shift in tone compared to previous statements suggesting a slower rate of increase. The minutes of the Fed’s last meeting also indicated that the majority of officials expect additional rate hikes.

Furthermore, benchmark U.S. 10-year Treasury yields are on track for their most significant weekly rise since mid-May, further diminishing the attractiveness of non-yielding gold as an investment option.

Technical Analysis