On July 3rd, the analysis from the previous day, Thursday, indicated that gold prices found support. This was due to weaker-than-expected US ADP data, hinting at a potentially less robust labor market than it appears, and comments from the Federal Reserve Chair suggesting that inflation risks have diminished, reducing the urgency for imminent rate hikes. This led to a short-term pullback in the US dollar, providing a foundation for gold's recovery. Short-term technical analysis also showed that after finding a footing, gold had room for a corrective rebound. Consequently, support levels were identified at $4,030, followed by $4,000 and $3,960, with resistance expected at $4,100 and $4,160.
Looking at the subsequent price action, on Thursday during the European session, gold experienced a minor dip, finding support at $4,057. After the US market opened, the metal saw a swift upward move, quickly surpassing the key $4,100 level to reach a high of $4,143 before encountering resistance. After retreating and stabilizing around $4,100, gold traded in a relatively high range for the rest of the session. In Friday's Asian trading, the rally continued, with gold breaking higher to touch $4,195 before pulling back. It found support at $4,160 and is currently trading around $4,178, maintaining its position near the day's highs. Overall, after breaking and holding above $4,100, gold extended its corrective rebound, aligning with the anticipated direction.
Market analysis suggests that the recent surge in the US dollar, which pressured gold to multi-month lows, was driven by a hawkish shift in the Federal Reserve's stance. This shift was communicated through the removal of forward guidance, upward revisions to inflation forecasts, and dot-plot signals, which significantly boosted market expectations for rate hikes this year. However, this week, gold halted its decline and initiated a rebound, easing short-term downside risks. This shift is primarily attributed to dovish-leaning remarks from the Fed Chair, who did not signal imminent rate hikes and acknowledged a recent decrease in inflation risks. Additionally, disappointing US ADP employment data suggested underlying weakness in the labor market. Thursday's release of the official US Non-Farm Payrolls report, which showed job additions far below expectations and prior values, further corroborated this view. The disappointing data pressured the US dollar to a one-week low, propelling gold to a one-week high.
On the daily chart, gold's rebound from its six-month low to a recent one-week high has alleviated short-term downward pressure. For support, attention can be paid to the day's pullback low of $4,160, which is also near the daily Bollinger Band midline. Further support lies at $4,140, the level from which the morning rally originated. A deeper retreat could see support at the $4,100 integer level, which was also Thursday's pullback low after the initial surge. On the upside, resistance is observed at the $4,200 integer level, near the day's high and the weekly MA5 moving average. A sustained break above this level could open the path for further gains towards $4,300. Technical indicators, including the 5-day MA nearing a golden cross, the MACD forming a golden cross, and the KDJ and RSI indicators turning upward from oversold conditions, collectively signal potential for further short-term rebound.
Summary and Outlook
The disappointing US Non-Farm Payrolls data, indicating a substantive cooling in the labor market, has significantly dampened expectations for Federal Reserve rate hikes. This has led to a retreat in the US dollar to a one-week low, supporting the rebound in gold prices. The suggested trading approach is to treat the market with a range-bound mindset. Key support levels to watch are $4,160 and $4,140, followed by $4,100. The primary resistance level is $4,200. A decisive break and hold above this level could pave the way for a move towards $4,300.
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