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Gold Analysis: Weak Dollar Supports Prices

  • Gold prices rose to $2365 an ounce during yesterday's trading session, hovering near their highest level in a month.
  • It is benefiting from a decline in the US dollar and Treasury yields after new data reinforced expectations that the Federal Reserve will cut the federal funds rate in September.
  • Data from the ISM index showed that services activity in the United States contracted by the most in four years in June, although markets had expected another period of contraction.

Gold Analysis Today 04/7: Weak USD Supports Prices (graph)

According to the economic results, the survey also pointed to a decline in inflation. This was consistent with the background of the Federal Reserve beginning to lower the cost of money. The ADP report pointed to fewer jobs added than expected, while US continuing unemployment claims rose for the ninth week to their highest level in 2021. Elsewhere, the Bank of England is expected to cut interest rates shortly after the UK election, while the People's Bank of China is expected to deliver further rate cuts and set the stage for further economic stimulus. Likewise, lower interest rates reduce the opportunity cost of holding non-yielding bullion.

Gold bullion prices remained well supported, as investors digested Fed Chairman Powell's somewhat cautious comments while awaiting further signals on the Fed's interest rate outlook. Powell said on Tuesday that the United States is slowing gradually, but more data is needed before cutting interest rates to ensure that recent low inflation readings accurately reflect the economy. Meanwhile, US job openings rose in May, exceeding expectations after sharp declines in the previous two periods but showing a continued softening in labor market conditions.

On the gold market front, the US dollar index stabilized around 105.7 on Wednesday after facing pressure in recent sessions, as investors continued to assess the US Federal Reserve’s monetary policy outlook. This is in light of stronger-than-expected jobs data and the latest comments from the central bank’s chairman. The JOLTS report released on Tuesday showed that US job openings increased by 221,000 to 8.140 million in May, exceeding expectations of 7.91 million. Meanwhile, Federal Reserve Chairman Jerome Powell said that the central bank has made significant progress on inflation but needs more confidence before cutting interest rates.

According to forex market trading, the US dollar stabilized against most major currencies, but remained at its highest levels in 3 years against the Japanese yen.

Another factor affecting the gold market, the yield on the US 10-year note stabilizes as the Federal Reserve ponders its expectations

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    According to the trades, the yield on the US 10-year note stabilized at around 4.44% on Wednesday after losing some ground in the previous session as investors reacted to stronger-than-expected jobs data and the latest comments from Federal Reserve Chairman Jerome Powell. The JOLTS report released on Tuesday showed that job openings increased by 221,000 to 8.140 million in May, beating expectations of 7.91 million. At the same time, Powell said that the latest data indicates a possible shift towards a deflationary trend, although they need more confidence about the inflation outlook before cutting interest rates.

    Elsewhere, increased odds of a second term for Donald Trump continued to support Treasury yields, which are seen as inflationary due to tax cuts, tighter immigration policies and higher import tariffs.

    Gold Price Forecast and Analysis Today:

    As we mentioned in the latest technical analysis of the gold price, the bulls' move towards the resistance level of $2355 per ounce will motivate the bulls to move further upwards. The next most important peaks will be $2370 and $2385 per ounce, which in turn will motivate a quick move to the psychological resistance of $2400 per ounce again. Moreover, this requires the continued decline of the US dollar, especially if the US jobs numbers come below all expectations. Global geopolitical tensions have increased, which supports gold. So far, we still prefer to buy gold from every downward level.

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    Mahmoud Abdallah
    About Mahmoud Abdallah
    Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.

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