Gold prices have extended their decline following the release of US Nonfarm Payrolls data for May, which indicated a higher-than-expected increase in employment and wages. This bearish trend was already in motion after the People’s Bank of China (PBoC) reported no change in its gold reserves for May compared to April. The short-term technical outlook for gold (XAU) remains volatile, with prices experiencing sharp fluctuations.
- US Jobs Report Shocks: The US Bureau of Labor Statistics (BLS) report revealed a much stronger-than-expected May jobs market. The economy added a whopping 272,000 jobs, exceeding forecasts of 185,000 and surpassing even the revised April figure of 165,000.
- Wage Growth Heats Up: Adding fuel to the fire, average hourly earnings rose 4.1% year-over-year, exceeding estimates of 3.9% and up from a revised 4.0% in April.
Why the Downturn for Gold?
This robust data suggests rising wage inflation, potentially leading to higher overall inflation. This could prompt the Federal Reserve to delay anticipated interest rate cuts. Higher interest rates make holding non-interest-bearing assets like gold less attractive, causing its price to fall.
China Throws Cold Water on Gold (XAU):
The bad news didn’t stop there. Gold was already on a downward slope after the People’s Bank of China (PBoC) abruptly stopped buying gold in May, ending an 18-month buying spree. This sudden shift from a major buyer dampened overall demand for the precious metal.
Double Whammy for Gold:
The combination of a stronger US economy and China’s buying halt dealt a double blow to gold prices, pushing them back down into the $2,310s. Only time will tell if this is a temporary dip or a sign of a longer-term trend.
Gold (XAU) Loses Gleam as China’s Buying Stalls
Gold prices are ending the week on a softer note after a key data point raised concerns about future demand. Here’s the breakdown:
- China’s Gold Reserves Stagnant: Official data from the People’s Bank of China (PBoC) revealed their gold reserves remained unchanged at 72.8 million troy ounces at the end of May, compared to April. This news comes after a record-breaking buying spree in April that saw China’s gold holdings reach an all-time high.
- Central Bank Buying: A Key Driver: Central bank purchases, particularly in Asia, have been a major force behind the 2024 gold rally that pushed prices to a record high of $2,450 in May. The World Gold Council (WGC) suggests unreported central bank purchases, particularly in off-exchange deals, were a significant contributor to this rise.
- The Devaluation Hedge: Asian and emerging market central banks have been accumulating gold reserves as a shield against potential devaluation of their currencies, especially against the US dollar. This trend intensified earlier this year when the Federal Reserve’s revised interest rate expectations strengthened the dollar.
- Shifting Rate Winds: However, recent weak US economic data has investors betting on a potential interest rate cut by the Fed in September. Globally, interest rate expectations are falling, with central banks in Canada and Europe already implementing cuts. This could potentially reduce the appeal of gold as a safe-haven asset.
The Technical Outlook on the Gold Market (XAU/USD)
The gold price initially surged past the upper boundary of a mini-range, spanning approximately $2,315 to $2,358, but then reversed direction and plummeted, retracing back within the original range. The gold bull market peaked at $2,387 before bears gained strength, driving the market back down into the lower price range. The bearish momentum was so strong that even the key support level at $2,320 was breached. However, this bearish momentum is now slowing as the price approaches the $2,300 level.
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