The price of gold experienced a sharp pullback from a recent peak on Monday, primarily influenced by a stronger US dollar. However, signs of cooling in the US labor market tempered expectations for imminent Federal Reserve interest rate hikes, which helped limit the metal's losses.
During Asian trading hours, the spot gold price briefly climbed above $4,200 per ounce, reaching a high of $4,203.07, its strongest level since June 22nd. The price then reversed sharply lower. In early New York trading, gold tumbled to an intraday low of $4,128.49 per ounce.
Prices subsequently recovered some ground, with gold closing the Monday session at $4,164.85 per ounce, marking a decline of 0.24% from the previous trading day.
Dollar Strength Weighs on Gold
The US Dollar Index rose 0.1% on the day, making dollar-denominated gold more expensive for overseas buyers and dampening some investment demand.
Furthermore, US Treasury yields held steady, with the benchmark 10-year yield flat at 4.451%.
Jim Wyckoff, a market analyst at American Gold Exchange, noted that the strength in the dollar index was the primary bearish factor for gold on Monday and the main reason for the retreat from its highs.
Geopolitical factors have taken a back seat as the US and Iran are scheduled for a second round of talks in Islamabad next Saturday. Outstanding issues include Iran's nuclear program, frozen assets, the situation in the Strait of Hormuz, and matters concerning Lebanon.
Beyond these developments, the US economic calendar will feature the release of minutes from the Federal Reserve's last meeting, followed by initial jobless claims for the week ending July 4th. Meanwhile, traders are closely monitoring the upcoming Consumer Price Index (CPI) data scheduled for release on July 14th.
Key Factor Supporting Gold Prices
Analysts point to last week's US employment data as a significant supportive factor for gold. The US economy added just 57,000 non-farm payrolls in June, far below the market forecast of 110,000. Data for the previous two months was also revised downward concurrently, indicating a continued cooling in the American labor market.
Following the non-farm payrolls report, market expectations for a near-term Fed rate hike have notably diminished.
According to the CME FedWatch Tool, the market currently prices in approximately a 57% probability of a Fed rate hike in September. While still above 50%, this probability has cooled significantly compared to levels seen before the jobs data release.
Market Awaits Fed Minutes
Investors are awaiting the release of the Federal Reserve's meeting minutes on Wednesday to gauge policymakers' latest views on inflation, employment, and interest rate policy.
Wyckoff believes the market's true focus remains on the direction of Fed policy. If the minutes reveal information that diverges from market expectations, it could trigger significant volatility in financial markets once again.
The market widely acknowledges that gold, as an inflation hedge and safe-haven asset, is attractive during periods of heightened geopolitical and economic uncertainty. However, if the Federal Reserve maintains a hawkish stance or implements rate hikes, increasing the carrying cost of the non-yielding asset, it would be unfavorable for gold's subsequent performance.
Technical Outlook for Gold
FXStreet analyst Christian Borjon Valencia noted that as long as the gold price fails to break above the descending resistance trendline in the $4,200 to $4,225 per ounce range, its downtrend remains intact. Furthermore, a "death cross" has formed on the daily chart, indicating that sellers are in control and signaling the potential for further declines. Although the Relative Strength Index (RSI) is moving toward the neutral 50 level, its overall momentum remains bearish, and price action over the past two trading sessions opens the door for further downside.
Valencia stated that if the price remains below $4,200 per ounce, the next support level would be the psychological $4,100 per ounce mark, followed by a potential test of $4,000 and the year-to-date low of $3,941 per ounce.
Valencia added that for a bullish reversal to materialize, the gold price would need to decisively break above $4,250 per ounce to then test $4,300. Key upside resistance levels include the 50-day Simple Moving Average (SMA) at $4,391 and the 200-day SMA at $4,488, followed by the $4,500 per ounce level.
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