(Kitco Commentary) - This week holds significant importance for gold traders, as they will closely monitor crucial economic data. There is no doubt that the gold price has been trading in a tight range due to the holiday season, but this is about to change, and gold traders are worried that the big bull run that we saw in 2024 may not happen this year.
Short But Volatile Week Ahead
While the shortened week, Memorial Day for former U.S. President Jimmy Carter on Thursday, might initially suggest subdued activity, the reality is that traders are gearing up for a busy period with crucial economic data.
Investors believe that trading volume is likely to see a return to normal as the anticipation builds for the release of critical data points. Specifically, the U.S. NFP report due on Friday will capture most of the market’s attention. Investors will be closely watching the data to assess two important aspects: the overall health of the U.S. labour market and the trends in U.S. wages, particularly the average hourly earnings.
The Forecast
The forecast for the NFP is 154K new jobs added, a significant decrease from the 227K reported in the previous month. The unemployment rate is expected to hold steady at 4.2%. However, market expectations are low, especially for the headline NFP number, which has set the bar lower.
Given the fact that the forecast is much lower than the previous reading, many believe that the bar is set much lower ahead of this event, which means that there are fewer chances of disappointment.
Impact of US NFP and The Fed Sentiment
For traders, the focus is likely to be on how the NFP data aligns with inflation readings from last week. If the U.S. jobs data meets or falls short of expectations, it could reinforce the Federal Reserve’s stance that a pause in the interest rate-cut cycle is on the horizon.
The Fed has already signalled the possibility of a pause, and good news on the NFP front may not necessarily be seen as bullish for the stock market. While strong jobs data signals a healthy labour market, it could also push the Fed to be less dovish and more cautious about further easing measures.
The yellow metal’s price, in particular, has become increasingly dependent on a dovish monetary policy, and any signs that the Fed will be less aggressive in cutting rates could create some headwinds for gold prices and also for the US equities. There are two reasons for this: for the shining metal, a less dovish monetary policy stance means that the dollar index may pick up more strength, which is not so much positive for the gold price. As for the US equity, it is also an important factor for the gold price because if the US equity markets pick up as momentum, traders consider that as more of an attractive option. So a less dovish stance means that the US equity market may take a hit, which could actually bring some potential capital as traders would consider hedging their bets.
Gold’s Price Action
Speaking from a macroeconomic price point, any reading that matches the expectations or shows a reading that is better than the expectations would really mean that the Fed will hold the process of cutting the interest rate in January. Traders would not like that, and it is possible that we may see the price of the shining metal coming down. However, if the number comes in weaker than the expectations, then we could see higher odds for the Fed to cut the rates again, and that would be highly favourable for the gold price.
In terms of technical analysis, the important price levels are shown on the chart below. The price has failed to remain above the 50-day SMA on the daily time frame which confirms that bulls are no longer in control of the price
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