Gold Analysis: Correction From Five-Week High

  • Gold prices retreated below $2,370 an ounce at the start of trading this week after rising by more than 1% in the previous session to reach the six-week high of $2,393 an ounce.
  • Its recent gains were driven by increased expectations of an early US rate cut by the Federal Reserve after weak US economic data.

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Gold Analysis Today 09/7: Correction from 5 Week High (graph)

Friday's data indicated a weakness in the US labor market, with the unemployment rate rising to a two-and-a-half-year high and wage growth falling to a three-year low. Currently, markets are pricing in a roughly 78% chance that the Federal Reserve will start cutting US interest rates in September, pricing in hopes of a second rate cut by the end of the year. Concurrently, Investors are focusing on the US CPI and PPI releases due this week, along with Fed Chairman Powell's semi-annual testimony on monetary policy before Congress and other statements from Fed officials throughout the week.

In Europe, traders are watching political developments after France’s left-wing New Popular Front coalition unexpectedly blocked the far-right’s advance on Sunday but failed to win a majority.

As for factors affecting the gold market, the US dollar is under pressure due to bets on a rate cut from the Federal Reserve.

According to reliable trading platforms, the US dollar index DXY stabilized below 105 on Monday after losing nearly 1% last week, weighed down by weak US economic data that reinforced cautious expectations for the Federal Reserve’s monetary policy. On Friday, data showed that the US unemployment rate rose to a two-and-a-half-year high of 4.1% in June, adding to evidence of a slowing labor market.

Furthermore, the previous data had pointed to weak service sector activity and private sector employment in the US. Markets now see a roughly 76% chance of a Fed rate cut in September, with a second rate cut also in December. Investors now look ahead to key US inflation data this week, as well as fresh comments from Federal Reserve officials for guidance. The price outlook is further afield. The US dollar has taken recent losses against most major currencies but gained some ground against the euro after the French election results pointed to a hung parliament.

Another factor weighing on the gold market, US 10-year bond yields are falling amid dovish Fed outlooks.

Meanwhile, the US 10-year Treasury yield held its recent lows at around 4.3%, hovering near a one-week low, as weak US economic data reinforced cautious expectations for Fed monetary policy. Also, safe-haven demand for US bonds weighed on yields as investors prepared for the upcoming US presidential election in November, while assessing the impact of recent elections in the UK and France.

Gold Price Forecast and Analysis Today:

Despite the recent selling, the price of gold is still on its upward path. The selling was supported by China's announcement to stop buying gold, but the market is receiving stimulus from other factors, such as increasing global geopolitical tensions and the halt in the gains of the US dollar.

Accordingly, the price of gold is expected to rebound upwards. According to direct trading recommendations, we prefer to buy gold from every downward level, and the closest to that are the support levels of $2348 and $2330 per ounce, respectively. In contrast, the price's return to the resistance of $2385 per ounce will strengthen expectations again to move towards the psychological resistance of $2400 per ounce.

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