- Gold price gains some positive traction following Thursday’s late pullback from a multi-week high.
- The US-China trade talks optimism holds back the XAU/USD bulls from placing aggressive bets.
- A modest USD uptick further contributes to capping the commodity ahead of the US NFP report.
Gold price (XAU/USD) retreats slightly from the daily top and trades with a mild positive bias, above the $3,350 level during the early part of the European session on Friday. The US Dollar (USD) gains some positive traction and moves away from its lowest level since April 22 set on Thursday amid repositioning trades ahead of the crucial US Nonfarm Payrolls (NFP) report. Apart from this, a generally positive risk tone and hopes for the resumption of US-China trade talks act as a headwind for the safe-haven precious metal.
However, US President Donald Trump’s rapidly shifting stance on trade policies, along with geopolitical risks stemming from the protracted Russia-Ukraine war and conflicts in the Middle East, might keep a lid on any optimism in the markets. Moreover, US fiscal concerns and bets that the Federal Reserve (Fed) will lower borrowing costs further in 2025 might cap any further USD appreciation, which, in turn, might continue to support the Gold price. Traders might also opt to move to the sidelines heading into the key data risk.
Daily Digest Market Movers: Gold price traders seem reluctant to place directional bets ahead of US NFP report
- US President Donald Trump and Chinese leader Xi Jinping agreed to further talks to settle trade disputes. Moreover, Trump said that the call was focused almost entirely on trade and resulted in a very positive conclusion, triggering an intraday pullback in the Gold price from over a four-week high on Thursday.
- The initial market reaction, however, turns out to be short-lived on the back of Trump’s rapidly shifting stance on trade policies. Adding to this, some repositioning trade ahead of the US Nonfarm Payrolls (NFP) report assists the XAU/USD pair to regain some positive traction during the Asian session on Friday.
- The impactful US monthly employment data is expected to show that the world’s largest economy added 130,000 new jobs in May following the stronger-than-expected 177,000 rise recorded in the previous month. Meanwhile, the Unemployment Rate is anticipated to hold steady at 4.2% during the reported month.
- A host of other employment readings released this week pointed to a cooling in the US labor market, which should give the Federal Reserve more impetus to cut interest rates. Traders are currently pricing in the possibility that the US central bank will deliver at least two 25 basis points rate cuts by the year-end.
- However, recent comments from a slew of Fed officials suggested that the US central bank might stick to the wait-and-see approach amid persistent trade-related uncertainties. Hence, the crucial US employment details will be looked upon for fresh insight into the Fed’s policy outlook and drive the US Dollar.
Gold price bullish technical setup backs the case for eventual breakout through a multi-day-old range
From a technical perspective, the top boundary of a multi-day-old range, around the $3,400 round figure, now seems to have emerged as an immediate barrier. Given that oscillators on the daily chart are holding in positive territory, a sustained strength beyond the said handle will be seen as a fresh trigger for bulls. The subsequent move-up could lift the Gold price to the $3,433-3,435 intermediate hurdle en route to the $3,500 neighborhood, or the all-time peak set in April.
On the flip side, the $3,334-3,333 area, or the lower end of the range, might continue to protect the immediate downside. Some follow-through selling, leading to a subsequent slide below the $3,326-3,324 horizontal resistance breakpoint, now turned support, could drag the Gold price below the $3,300 round figure, to the $3,286-3,285 region.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
