The modest rebound in the gold price has not been able to protect it from vulnerability near its lowest point in several months
Gold Price Struggles to Capitalize on Recovery
Gold Price and US Dollar
The price of gold (XAU/USD) had a bit of a boost on Thursday, but it couldn’t fully take advantage of the recovery. It faced some resistance around the $1,830 mark during the early European session. The rise in gold price was partly due to the decrease in the benchmark 10-year US Treasury bond yields, which caused the US Dollar (USD) to drop from its recent high. However, traders are being cautious and not making big bets because they want more clarity on what the Federal Reserve (Fed) will do next.
US Labor Market and Services Sector
A report from Automatic Data Processing (ADP) showed that the labor market in the United States (US) is cooling down. Additionally, a survey by the Institute for Supply Management (ISM) indicated that the US services sector is slowing down. These factors give the Fed a reason to stop raising interest rates. As a result, US bond yields are decreasing, and traders are reducing their bets on the USD. The US economy is still expected to grow well in the third quarter, which means the Fed can keep interest rates higher for a longer time.
Fed Policy and Gold Price
Some Fed officials have mentioned that they want to raise interest rates to bring inflation back to the target of 2%. This suggests that there might be at least one more rate hike in 2023. This supports US bond yields and prevents the USD from dropping too much. As a result, the gold price, which doesn’t provide any yield, is not able to rise significantly. It would be wise to wait for more buying activity before confirming that the gold price has hit a short-term low and is ready to rise further.
US Monthly Employment Details
Traders might also choose to wait before making any moves because the closely-watched US monthly employment details will be released on Friday. This report, known as the NFP report, will have a big impact on expectations for future rate hikes by the Fed. This, in turn, will affect the demand for the USD and provide a new direction for the gold price. Before the release of this important data, traders will also be looking at the US Weekly Initial Jobless Claims data for any short-term opportunities later on Thursday during the early North American session.