June 6, 2024 – Gold prices (XAU/USD) saw continued upward momentum for the second consecutive day, reaching a two-week high around $2,373 during the Asian session on Thursday. The market’s near-term bias remains bullish, driven by anticipations that major central banks will lower borrowing costs to stimulate economic growth.
The Bank of Canada (BoC) recently cut its benchmark interest rate for the first time in four years, lowering it from a more than two-decade high, citing concerns over slowing economic growth. Similarly, the European Central Bank (ECB) is expected to announce an interest rate cut later today, which would be its first since March 2016.
In the United States, market participants are increasingly betting on an imminent rate cut by the Federal Reserve (Fed) due to signs of a slowdown in the U.S. economy. This expectation has kept U.S. Treasury bond yields depressed near their lowest levels in over two months and has hampered the U.S. Dollar’s (USD) recent recovery. Additionally, persistent geopolitical tensions in the Middle East continue to support the safe-haven appeal of gold.
Despite these supportive factors, the potential for significant gains in XAU/USD remains limited as traders await the release of the U.S. Nonfarm Payrolls (NFP) report on Friday.
Market Movers: Rate Cut Expectations and Weaker USD Boost Gold
Mixed U.S. macroeconomic data released on Wednesday reinforced expectations that the Federal Reserve will start cutting interest rates later this year. This has lowered U.S. Treasury bond yields and benefited the non-yielding gold price.
The Automatic Data Processing (ADP) report showed that private sector employment in the U.S. increased by 152,000 in May, falling short of the 173,000 anticipated and the previous month’s downwardly revised figure of 188,000. Meanwhile, the Institute for Supply Management’s (ISM) Services PMI rose to 53.8 in May, its highest level since August, exceeding consensus estimates of 50.8. However, the Prices Paid sub-component decreased slightly to 58.1 from 59.2.
Additionally, the softer U.S. Personal Consumption Expenditures (PCE) Price Index on Friday suggested easing inflationary pressures, further dragging down U.S. Treasury bond yields and supporting gold prices. The benchmark 10-year U.S. Treasury yield fell to a two-month low of 4.28%, while the yield on the rate-sensitive 2-year U.S. government bond dropped to 4.731%, amid speculation that upcoming job data may fall short of expectations.
Although the U.S. Dollar showed some positive reaction to the data, the decline in Treasury yields continued to support gold, lifting it to a fresh weekly peak during Thursday’s Asian session. Traders now await the release of the Weekly Initial Jobless Claims data from the U.S. for further direction, with primary focus remaining on the upcoming NFP report on Friday.
Technical Analysis: Gold Faces Resistance Near $2,400
From a technical standpoint, a move beyond the $2,364 area, last week’s swing high, could trigger further bullish activity. However, mixed oscillators on the daily chart advise caution before expecting additional gains. Gold prices are likely to face strong resistance near the $2,400 mark. Sustained buying could lift the price to the next significant barrier around $2,425, with further potential to reach the $2,450 region, the all-time peak touched in May.
Conversely, a decline below the $2,360 level may attract fresh buyers around the $2,340 zone, helping to limit the downside near the $2,315-$2,314 area, which was the multi-week low touched on Tuesday. A decisive break below this level would confirm a breakdown through the 50-day Simple Moving Average (SMA), paving the way for deeper losses. In this scenario, XAU/USD could weaken further below the $2,300 mark and test the $2,280 support zone.
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