Gold Prices Forecast: Cooling US Labor Market Boosting Demand

Gold Market Trends

Gold prices have seen a notable increase, marking the most significant weekly gain since early April. This surge is primarily driven by the latest U.S. employment data, which suggests a cooling labor market, thereby increasing the likelihood of an interest rate cut by the Federal Reserve later this year.

At 11:17 GMT, XAU/USD is trading $2373.95, up $27.70 or +1.18%.

Market Conditions

The weak job figures have been a key factor for investors recalibrating their expectations toward a more dovish monetary policy stance from the Fed. Notably, initial jobless claims in the U.S. reached their highest point since August 2023, signaling potential shifts in the labor market’s strength. This development has prompted a reassessment among traders, expecting rate reductions as a measure to support economic growth.

Bond Market Response

The U.S. Treasury yields remained mostly unchanged despite fluctuations in jobless claims, indicating a cautious stance among investors. The outcome of a recent $25 billion Treasury bond auction, which saw strong demand, has further solidified the focus on the Federal Reserve’s next moves concerning interest rates.

Monetary Policy Outlook

Comments from Federal Reserve officials reflect uncertainty regarding the future path of U.S. inflation, influencing market speculation about the timing and extent of anticipated rate cuts. Federal Reserve Bank of Atlanta President Raphael Bostic hinted at a possible rate cut by the end of the year, although the decision will hinge on forthcoming economic data and inflation trends.

Investor Sentiment

Investor sentiment remains buoyed by the prospect of easing monetary policy across major economies, including the European Central Bank. This sentiment is reflected in the strengthening of gold prices, as lower interest rates would decrease the opportunity cost of holding non-yielding bullion.

Short-Term Forecast

Looking forward, gold prices are expected to maintain a bullish outlook in the short term. The anticipation of Federal Reserve rate cuts, coupled with ongoing assessments of inflation and employment data, will be critical in shaping market movements. Investors remain vigilant, with upcoming U.S. inflation reports and central bank updates poised to further influence gold’s investment appeal.

Technical Analysis

XAU/USD is trading sharply higher for a second straight session on Friday after breaking out of its tight trading range. The market is also trading on the strong side of its short-term pivot at $2354.50, making this level new support.

The upside momentum created by this move has put $2417.92 and $2431.59 back on the radar as upside targets.

Besides the short-term pivot at $2354.50, additional support is the short-term bottom at $2277.25, followed by the uptrending 50-day moving average at $2264.39.