Gold Price Recovery Runs Out of Steam as Red-Hot US Jobs Data Boosts Yields

GOLD PRICES FORECAST:

• Gold prices retreat as Treasury yields charge higher following solid U.S. payrolls data
• The U.S. economy added 339,000 jobs in May, topping estimates by a wide margin
• The strong and resilient labor market could nudge the Fed to continue hiking interest rates heading into the summer

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Gold futures retreated on Friday, down about 0.7 % to $1,981 in late morning trading in New York heading into the weekend, bringing their recent recovery to a screeching halt, pressured by rising rates and U.S. dollar strength following sizzling-hot U.S. nonfarm payrolls growth.

For context, the latest U.S. employment survey showed that the country added 339,000 jobs in May, well above consensus estimates of 190,000. The solid report boosted Treasury yields across the curve, especially those at the front end, with the 2-year note climbing nearly 14 basis points to 4.47 %.

The remarkably strong labor market may prompt the Fed to continue to raise borrowing costs in the coming months as part of its battle to curb sticky inflation. It is also possible that monetary policy will remain restrictive for an extended period of time in response to the resilience of the economy.

Related: Gold Prices at Risk of Deeper Correction on Surging Real Yields, USD Strength

While policymakers have indicated they’d favor holding rates steady at the June FOMC conclave to assess the lagged effects of cumulative tightening, a pause may be temporary, with the bank resuming hiking at subsequent meetings.

The possibility of seeing one or two more hikes, coupled with higher-for-longer interest rates, will be a headwind for non-yielding assets, complicating gold’s outlook in the near term. Against this backdrop, XAU/USD could stage a deeper pullback before stabilizing later this year.

In terms of technical analysis, gold prices are sitting above support near the $1,975 level after Friday’s slide. If this floor caves in, sellers may become emboldened to launch an attack on trendline support at $1,950. In the event of a rebound from current levels, resistance is seen at $2,000, followed by $2,050.

GOLD PRICES TECHNICAL CHART

Gold Futures Chart Prepared Using TradingView