- The US dollar made strong gains at the end of trading last week following stronger-than-expected US jobs figures, which led to strong selling of the gold price XAU/USD with losses extending to the support level of $2028 per ounce before closing trading around $2039 per ounce.
- Last week, gold price gains reached the resistance level of $2065 per ounce, as global geopolitical tensions and further central bank purchases continue to support gold.
Recently, stock markets have come under pressure from much higher yields in the bond market after a report showed that US employees added far more workers last month than economists had expected. While strength is a advantage for workers and keeps the risk of recession at bay, the concern is that it could keep some upward pressure on inflation. Moreover, this could mean a longer wait for the Federal Reserve to start cutting US interest rates. Hopes for such cuts, which could ease pressure on the economy and boost investment prices, were a key reason for the US stock market's rise to record highs. For his part, Federal Reserve Chairman Jerome Powell recently said that cuts are unlikely to start as soon as traders had hoped.
Meanwhile, the yield on 10-year Treasury bonds jumped immediately after the release of the US jobs report and rose to 4.02% from 3.88% late Thursday.
Overall, traders had already pushed bets on the timing of the Fed's first US interest rate cut to May from March after Powell's warning. After the jobs report, traders shifted some bets further out on the calendar into June, according to data from CME Group. In addition to the total employment number, the US jobs report included several signs showing much greater strength than expected. Also, Average hourly wages for workers rose more than expected in January. Moreover, the unemployment rate did not deteriorate unexpectedly. Finally, the US government added that hiring was actually much stronger in December than it had previously reported.
The question for the stock market is whether the upside of this strength outweighs the downside. In other words, will a stronger economy create enough of an increase in corporate profits to make up for delayed or dashed hopes for rapid and large interest rate cuts?
Overall, the US economy is testing bond traders' confidence that the Federal Reserve will deliver a series of interest rate cuts this year. Accordingly, the unexpected increase in US hiring in January showed that there is little pressure on the central bank to start easing monetary policy so far, giving it time to see if inflation is moving sustainably towards its 2% target.
Fed Chairman Jerome Powell — who is scheduled to appear on CBS' 60 Minutes on Sunday — endorsed this wait-and-see approach last week, prompting traders to cut bets on a first rate cut before May. Nonetheless, Jerome Powell left no doubt that the US central bank will begin to ease this year as the post-pandemic inflation surge subsides. Obviously, this has stick traders convinced that interest rates will fall at some point - even as questions grow about how far the central bank will go.
Gold Price Forecast and Analysis Today:
The recent selling operations have not taken the price of gold (XAU/USD) out of its upward channel yet, and the factors of the yellow metal’s gains continue. Consequently, the bulls’ control over the market may remain for a longer period, which is represented by the increase in global geopolitical tensions and the increase in central banks’ purchases of gold, in addition to banks’ signals to calm the course of tightening their policies. Therefore, as we mentioned before, and according to what was stated on the direct trading recommendations page, buy gold from every falling level. Technically, the current closest support levels for gold are 2023, 2010, and 1985 dollars, respectively. On the other hand, over the same time period, breaking the $2,065 resistance will be important for bulls to control the next most important resistance, $2,100 per ounce.
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