The price of gold (XAU/USD) continues its decline during Monday’s trading, reaching near its lowest level in two weeks at $2005.
This drop followed the strong monthly employment details in the United States on Friday. The non-farm payrolls (NFP) report indicated that the U.S. labor market remains resilient, forcing investors to scale back expectations for further monetary easing by the Federal Reserve.
This, in turn, supports the rise of U.S. Treasury bond yields, acting as a supportive force for the U.S. dollar and diverting liquidity away from gold, which does not yield returns.
I believe the markets are still pricing in a greater chance of the Federal Reserve’s first interest rate cut at its March policy meeting, followed by cumulative interest rate cuts by 25 basis points for 2024. This prevents a strong rise in the U.S. dollar, providing some support for the gold price.
The generally weaker risk tone in the markets should act as a supportive force for the rise of precious metals considered a haven.
Tomorrow, the markets are eagerly awaiting the speech scheduled to be delivered by the President of the Federal Reserve Bank of Atlanta, Raphael Bostic, to gain some momentum in the absence of significant data until the release of the Consumer Confidence Index on Thursday and the Producer Price Index on Friday.
A study by the Institute for Supply Management (ISM) also indicated a contraction in the U.S. services sector, which represents over two-thirds of the economy, last month. The non-manufacturing ISM index fell to 50.6 in December, the lowest reading since May, and employment numbers dropped to 43.3 – the lowest level since July 2020.
Furthermore, the President of the Federal Reserve Bank of Dallas, Robert Kaplan, pointed out that if the U.S. central bank does not maintain sufficiently tight financial conditions, there is a risk of inflation rising again, negatively impacting the markets.
While the yield on 10-year U.S. government bonds remains above 4.0%, increasing negative pressure on the gold price in the short and medium term.
From my perspective, economic issues in China, along with escalating tensions in the Middle East and Ukraine, could provide some support for gold, which is considered a haven in the period leading up to the release of U.S. Consumer Inflation figures on Thursday.
Considering the above factors, I believe that the price of gold (XAU/USD) is under some renewed selling pressure on the first day of the week, approaching again the lowest level in two weeks touched after the better-than-expected U.S. monthly job data released on Friday.
Additional details showed that the unemployment rate remained unchanged at 3.7%, and annual wage inflation increased to 4.1% from 3.9% in November.
This indicates that the U.S. labor market remains flexible, giving the Federal Reserve more room to keep interest rates high for a longer period, supporting high U.S. Treasury bond yields and the strength of the dollar, while increasing pressure on gold prices, which do not yield returns.