- Gold price attempts a tepid bounce amid US holiday-thinned market conditions and cautious mood.
- US Dollar fades post-NFP recovery rally as US fiscal and tariff concerns dampen sentiment.
- Gold price faces rejection at 23.6% Fibo resistance, will the 50-day SMA support hold? The daily RSI flirts with the midline.
Gold price has stalled its pullback from a weekly high of $3,366, finding fresh buyers in Friday’s Asian trading. Thin trading will likely extend due to a US holiday, which could exaggerate Gold price moves.
Gold price could be subject to volatility
Amid holiday-thinned conditions, Gold price is looking to reverse the previous retracement from weekly highs as the US Dollar (USD) recovery is fizzling out amid fresh concerns over US President Donald Trump’s ‘big, beautiful’ tax-cut and spending bill.
Republican-controlled House of Representatives narrowly approved and passed Trump’s tax-cut legislation in the US Congress on Thursday.
Investors remain wary that the bill would add $3.4 trillion to the nation’s $36.2 trillion debt, deepening America’s fiscal imbalances further.
This coupled with Trump’s tariff concerns act as a headwind to the US Dollar rebound, lending support to the USD-denominated Gold price.
On Thursday, the bright metal witnessed two-way business, hitting fresh weekly highs and hanging close to it in the first half of the day before coming under intense selling pressure following a surprisingly strong US labor market report.
The headline Nonfarm Payrolls rose by 147,000 in June, against expectations of a 110,000 increase and the previous revision of 144,000.
The Unemployment Rate unexpectedly dropped to 4.1% last month versus 4.3% expected and May’s 4.2%.
Solid job gains poured cold water on increased bets of US Federal Reserve (Fed) aggressive interest rate cuts this year, making the case for the Fed to hold rates steady.
Markets are now pricing in a 63% probability of a September Fed rate cut, down from about 72% pre-data release, according to the CME Group’s FedWatch Tool. Meanwhile, markets have priced out a July rate cut.
The hawkish shift in the Fed expectations fuelled a broad US Dollar relief rally at the expense of the non-interest-bearing Gold price.
Looking ahead, Gold traders will closely monitor developments on the trade front, with Trump expecting a few deals before the July 9 deadline.
The end-of-the-week flows and thin volumes will likely inject intense volatility in the Gold price action in the day ahead.
Gold price technical analysis: Daily chart
Having faced rejection above the 21-day Simple Moving Average (SMA), then at $3,350, Gold price turned lower, now testing the 50-day SMA support at $3,322.
The 14-day Relative Strength Index (RSI) is battling the midline, suggesting that buyers are not ready to give up yet.
So long as the 50-day SMA support holds, Gold price could aim for a retest of the 21-day SMA.
A daily candlestick closing above that level is required to take on the 23.6% Fibonacci Retracement (Fibo) level of the April record rally at $3,377.
The next topside hurdle is seen at the $3,400 threshold.
If sellers crack the 50-day SMA on a sustained basis, a drop toward the $3,297 38.2% Fibo level cannot be ruled out.
Deeper declines will target the monthly lows of $3,248.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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