Gold prices (XAU/USD) have extended their rally for the second consecutive day, reaching a two-week peak around the $2,375 mark during the European session on Thursday. The bullish trend is driven by expectations that major central banks will lower borrowng costs to stimulate economic growth. On Wednesday, the Bank of Canada (BoC) cut its benchmark rate for the first time in four years, citing concerns over slowing economic growth. Similarly, the European Central Bank (ECB) is anticipated to reduce interest rates at the conclusion of its June policy meeting today, marking the first cut since March 2016.
Market sentiment has shifted towards a potential imminent rate cut by the Federal Reserve (Fed) due to signs of a slowing US economy. This outlook has kept US Treasury bond yields near their lowest levels in over two months, undermining the US Dollar’s (USD) recent modest recovery. Additionally, ongoing geopolitical tensions in the Middle East continue to support the demand for the safe-haven asset, gold. However, despite these favorable conditions, the upward momentum for gold may be limited as traders await the release of the US Nonfarm Payrolls (NFP) report on Friday.
Daily Market Movers: Fed Rate Cut Bets and Weaker USD Bolster Gold
Mixed US macroeconomic data released on Wednesday reinforced the expectation that the Federal Reserve might commence cutting interest rates later this year. This prospect has pressured US Treasury bond yields lower, benefiting gold, which does not offer yields.
The Automatic Data Processing (ADP) report indicated that private sector employment in the US increased by 152,000 in May, falling short of the 173,000 anticipated and the previous month’s revised figure of 188,000. Concurrently, the Institute for Supply Management’s (ISM) Services PMI rose to 53.8 in May, its highest since August, surpassing the forecast of 50.8, while the Prices Paid sub-component slightly declined from 59.2 to 58.1. These data points, along with the softer US Personal Consumption Expenditures (PCE) Price Index released on Friday, suggest easing inflationary pressures, further lowering US Treasury bond yields and supporting gold prices.
The benchmark 10-year US Treasury yield dropped to a two-month low of 4.28%, and the yield on the rate-sensitive 2-year US government bond fell to 4.731%, amid speculation that upcoming job data will disappoint. Although the US Dollar briefly reacted positively to the data, the decline in Treasury yields continued to boost gold prices, pushing them to a new weekly peak during Thursday’s Asian session.
Traders are now anticipating the Weekly Initial Jobless Claims data from the US, though the primary focus remains on the US Nonfarm Payrolls report due on Friday.
Technical Analysis: Gold Facing Resistance Near $2,400
From a technical standpoint, movement beyond the $2,364 area, last week’s swing high, could trigger further bullish activity. However, mixed oscillators on the daily chart suggest caution is warranted before expecting significant gains. Any subsequent upward move is likely to face stiff resistance and may remain capped near the $2,400 level. Continued buying interest could lift gold prices to the next resistance at around $2,425, with potential to reach the $2,450 region, which is close to the all-time high recorded in May.
Conversely, a meaningful decline below the $2,360 level might attract fresh buying interest around the $2,340 support zone. This could help limit the downside near the $2,315-$2,314 area, the multi-week low touched on Tuesday. A decisive break below this level would signal a breakdown through the 50-day Simple Moving Average (SMA), potentially leading to deeper losses. The XAU/USD might then weaken further below the $2,300 mark, testing support around the $2,280 zone.
