Gold increases for the 4th week in a row, contains many risks

Gold price fell shortly after the latest official US labor market report, which showed 390k jobs were added in May, 325k more than expected. Markets have seen a price reaction in the prospect of stronger Fed tightening, with US bond yields and the US dollar rising. The US 10-year yield is up about 6 basis points and is back near 3.0%.

Gold prices fell back into the $1,860 region, trading about 0.5% lower on the day, after hitting a multi-week high near $1,875 in the previous session. However, the precious metal continued to post modest weekly gains of around 0.3% after finding support earlier in the week as it fell back to the 200-day range average in the key $1840 region.

As the latest US jobs data also showed US wage pressures eased last month, some gold speculators may see the latest drop in price as an opportunity to add to long positions and Targeting a retest of the weekly high.

However, analysts have considered the wages indexes in this month’s jobs report to be the most important, given the Fed’s focus on inflation. Gold traders should keep an eye out for the upcoming release of US Institute of Supply Management (ISM) Manufacturing and Services Survey (PMI) data for May at 1400 GMT, during Investors should heed comments from Fed Vice President Lael Brainard.

“Gold remains on track as it closes for the third straight week of gains. However, recent price action suggests that gold may find it difficult to make a decisive move in either direction unless it breaks out of the $1,840-$1875 range.

Support or resistance (Fibonacci) at 38.2% of the latest downtrend seems to have formed stiff resistance at $1,875. With a daily close above that, gold could target the $1,890 area.

At $1,850 The 23.6% (Fibonacci) resistance is temporary support ahead of 1,840. In the event that the price later turns into resistance, this could be seen as a significant bearish development and attract sellers. In that scenario, additional losses towards $1,830 could be played out.”

The European Central Bank (ECB) is widely expected to raise its policy rate by 25 basis points in July. In the event that the ECB reveals its interest rate outlook, gold prices against the euro could come under heavy downward pressure and drive gold against the dollar lower as well. However, the market valuation of the USD would also be negatively affected in that scenario and help gold limit losses.

Next Friday, the US Bureau of Statistics (BLS) will release May inflation data. On a year-on-year basis, the Consumer Price Index (CPI) is forecast to decline to 8.2% from 8.3% in April. Market reaction to inflation data will be fairly straightforward with Lower-than-expected CPI affects US bond yields and provides a boost to gold prices and vice versa.

Gold prices are consolidating a rally next week, possibly to a one-month high, reaching above $1,870 on Friday, amid a volatile US equity market. Cautious sentiment prevailed in the face of a spate of disappointing US economic data recently, which dampened Fed tightening expectations. US Treasury yields are stabilizing after the previous pullback, providing an opportunity for gold prices to continue rising. Investors refrained from placing any directional bets on gold prices, as they await US nonfarm payrolls (NFP) data for fresh trading opportunities.

Ngoc Cuong