Gold Price Forecast: XAU Set for Strong Weekly Gain on Fed’s Pause, Debt-Ceiling Progress

Highlights

• Gold on track for largest weekly gain in almost two months.
• Fed’s temporary halt and progress on debt-ceiling contribute to positive sentiment.
• Philadelphia Fed President advocates pause in rate hikes, aligning with market expectations.

Overview

Gold (XAU) is poised for its largest weekly gain in almost two months, driven by optimistic expectations of a temporary halt in the Federal Reserve’s tightening measures and progress on resolving the U.S. debt-ceiling issue. With a 1.7% increase so far this week, gold is on track for its best performance since early April. The current sentiment in the gold market remains positive, and there is a possibility of further price gains as the Fed is anticipated to maintain its current stance in June.

Fed’s Harker Opposes Rate Hike

Philadelphia Federal Reserve President Patrick Harker voiced his opinion against raising interest rates at the upcoming rate-setting meeting in June. Despite acknowledging the persistently slow decline in high inflation, Harker advocated for a pause to evaluate the situation. He highlighted the cooling effect of the Fed’s previous rate hikes, particularly on housing prices, and expressed concern over uncertainties surrounding inflation dynamics and the pace of credit tightening. Harker suggested that the Fed should stay in restrictive territory for the time being without rushing into further rate increases.

Market expectations align with Harker’s stance, as there is a 73.7% probability of rates remaining unchanged in June. Gold, which lacks its own interest yield, tends to lose appeal when interest rates rise. Additionally, the U.S. dollar index is currently trading close to a one-week low, making gold more affordable for buyers holding other currencies.

Senate Passes Debt Ceiling Bill

In other news, the U.S. Senate successfully passed a bipartisan bill, supported by President Joe Biden, to raise the government’s debt ceiling, avoiding a historic default that could have occurred for the first time ever.

Market Awaits NFP Report

Investors are also closely monitoring the U.S. Labor Department’s non-farm payrolls (NFP) report, scheduled for release at 12:30 GMT. It is expected to reveal a slowdown in U.S. job growth for May, potentially allowing the Federal Reserve to forgo an interest rate hike this month, which would be the first break in their aggressive policy tightening campaign in over a year. Despite the expected deceleration, the labor market is anticipated to remain tight, with the unemployment rate projected to increase to 3.5%. While the economy is not heading towards a recession, some areas of weakness are starting to emerge.

Job Growth Expected to Decline

According to economists surveyed by Reuters, the report is likely to show an increase of 190,000 jobs in non-farm payrolls, a decline from the monthly average of 285,000 seen in the first four months of the year but still well above the level needed to sustain working-age population growth. Revisions to the March and April data will be closely scrutinized, considering the government’s downward adjustments of 149,000 in the previous month.

Payrolls Report to Set Market Tone

The outcome of the non-farm payrolls report could significantly impact market sentiment and influence the Federal Open Market Committee’s (FOMC) decision-making next week. A robust labor market report might trigger a rebound in the dollar, which would not bode well for gold prices.

Technical Analysis

Gold (XAU) is trading on the bearish side of $1992.24 (PIVOT), putting it in a weak position. This level is also the nearest resistance and a potential trigger point for an acceleration to the upside.

A sustained move under $1992.24 (PIVOT) will indicate the selling pressure is getting stronger. If this creates enough downside momentum then look for the selling to possibly extend into $1917.41 (S1).

A sustained move over the $1992.24 (PIVOT) will signal the return of strong counter-trend buyers. If this creates enough near-term momentum then look for a surge into the $2052.37 (R1).

For a look at all of today’s economic events, check out our economic calendar.