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Gold Prices Rebound as the US Dollar and Yields Fall After Strong NFP


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GOLD PRICE OUTLOOK:

  • Gold prices are trading higher on Monday following strong US nonfarm payrolls data
  • The US Dollar retreated alongside Treasury yields, boosting precious metal prices
  • Traders are eyeing $1,795 for resistance, breaching which may lead to further gains

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Gold prices traded modestly higher during Monday’s APAC session, as a weaker US Dollar and lower yields bolstered the appeal of the yellow metal. Prices continued to consolidate in a tight range between $1,750 - $1,795 waiting for fresh catalysts. The DXY US Dollar index pulled away from a 3-month high and Treasury yields retreated across the curve - both are exerting upward pressure on gold. The closure of US markets on Monday may thin out trading volume however.

US nonfarm payrolls beat market expectations on the upside, with hiring accelerating in June as labor market supply constraints eased. 850k new jobs added, marking the highest reading in 10 months (chart below). Average hourly earnings rose 0.3% MoM and 3.6% YoY, reflecting strong demand for labor. An upbeat payrolls figure strengthened the prospects for the US economic recovery, yet the pace of job growth didn’t appear to have reached a level that would prompt the Fed to tighten quickly. This created an ideal backdrop for gold to recover some losses and attempt a near-term breakout.

The medium-term outlook for gold remains bearish-biased however, as central banks around the globe are moving closer to gradually scaling back the pandemic-era monetary stimulus, including asset purchases and ultra-low interest rates. Traders are eyeing this week’s RBA meeting and June FOMC minutes for fresh clues about this prospect.

US Nonfarm Payrolls – Past 12 Months

Gold Prices Rebound as the US Dollar and Yields Fall After Strong NFP

Source: Bloomberg, DailyFX

Gold Price Technical Analysis

Technically, gold prices are consolidating in a tight range between $1,750 - $1,795 as shown on the chart below. The overall trend remains bearish-biased after prices breached below the floor of the “Ascending Channel” in mid-June. An immediate support level can be found at $1,750 – the 78.6% Fibonacci retracement. The MACD indicator is about to form a bullish crossover and trended lower, suggesting that near-term selling pressure may be fading.

Gold Price – Daily Chart

Gold Prices Rebound as the US Dollar and Yields Fall After Strong NFP

CHANGE IN LONGS SHORTS OI
DAILY 2% 4% 2%
WEEKLY -8% 23% -4%

 

Written by Margaret Yang, CFA, Strategist for DailyFX

5 JULY, 2021

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