Gold Prices Forecast: Plummeting on Position-Squaring Ahead of US Payrolls Data

Gold Prices Drop Ahead of U.S. Non-Farm Payrolls Report

Gold prices are experiencing a notable decline just before the anticipated release of the U.S. Non-Farm Payrolls report at 12:30 GMT. This movement is primarily attributed to profit-taking and position-squaring by traders. Despite this current setback, gold prices are set to mark their first weekly gain in three weeks as market participants increasingly bet on the Federal Reserve potentially cutting interest rates soon, which would likely lower both the dollar and Treasury yields.

At 09:29 GMT, XAU/USD is trading $2379.18, down $41.85 or -1.73%.

Treasury Yields and Dollar Movement

U.S. Treasury yields rose on Friday as investors awaited crucial labor market data, which could offer new insights into the economy’s condition and future interest rate decisions. On Thursday, the benchmark 10-year U.S. Treasury yield dropped to as low as 4.275%, its lowest since April 1, enhancing gold’s appeal to investors. Meanwhile, the dollar remained close to an eight-week low, nearly flat as traders adjusted their positions ahead of the payroll report.

Anticipation of Non-Farm Payrolls Report

Investors are keenly awaiting the May nonfarm payrolls report, which is expected to show an increase of 190,000 jobs, up from April’s 175,000 according to a Dow Jones survey. This comes after the ADP private payrolls report indicated a lower-than-expected addition of 152,000 jobs in May. Additionally, the latest wage growth data, expected to be released alongside the payroll report, is projected to show a year-over-year increase of 3.9%.

Market Hopes for Slowing Labor Market

Many investors hope that Friday’s data will reveal signs of a slowing labor market and economy, which could signal to the Federal Reserve the need to ease monetary policy and consider cutting interest rates. The Fed is expected to maintain current rates in its upcoming meetings in June and July, with traders pricing in a 68% chance of a rate cut by September, according to CME Group’s FedWatch tool.

Global Economic Context

In a related move, the European Central Bank recently cut interest rates for the first time since 2019, even as inflationary pressures persist. This decision raises questions about the potential for additional rate cuts this year.

Market Forecast: Bullish Outlook for Gold with Near-Term Uncertainty

Gold prices have found support from declining bond yields and a weaker dollar. A significant downside surprise in the upcoming labor market data could prompt the Federal Reserve to consider an earlier rate cut, particularly since inflation remains stalled around the 3% level. Such developments could lead to a rise in gold prices.

With the possibility of Fed rate cuts and ongoing Chinese reserve buying, gold prices are expected to maintain a broadly bullish trend. Consultancy Metals Focus even predicts that gold prices could reach another record high this year despite a dip in physical demand.

However, all bets are off for a near-term rally if the jobs report is stronger-than-expected. This could reduce the chances of a September rate cut and push it toward November or December.

Technical Analysis

Trader reaction to 50-day moving average at $2343.27 sets the tone. This indicator has been controlling the intermediate trend since February 29.

On the downside, look for a potential acceleration into $2277.34 if $2314.79 fails as support.

On the upside, the pivot at $2382.46 is a potential trigger point for a breakout rally.