In Asian trading on Monday, gold is hovering around its four-week low of $2,286 as it attempts a sluggish recovery. Following strong US Nonfarm Payrolls data on Friday, the US Dollar continues to rise along with US Treasury bond rates.

After a brief period of consolidation, the gold price continued the downward break of the rising wedge on Friday.

In doing so, the price of gold traded below $2,300 and broke below the important daily short-term Simple Moving Averages (SMA).

The 14-day Relative Strength Index (RSI) has stopped falling temporarily but is still below the 50 level, close to 43, leaving room for more declines.

The $2,277 low on May 3rd represents the immediate demand area. There could be a further sell-off towards the 100-day SMA at $2,214 if the latter is broken persistently.

The $2,250 psychological barrier could be tested before that point.

Alternatively, acceptance above the 50-day SMA support turned resistance at $2,343 will be necessary for any recovery in the price of gold.

 

Regaining the 21-day SMA at $2,357 will be crucial to counteracting the short-term bearish bias.

Then, gold buyers will stretch their muscles toward the $2,364 high from May 24.

Fundamental Overview

In contrast to the 185K jobs forecast, Nonfarm Payrolls expanded by 272,000 jobs last month, according to the US Labour Department’s carefully watched employment data released on Friday. At the same time, the Unemployment Rate unexpectedly increased to 4% in May from 3.9% in April. In comparison to the 4% increase in April, Average Hourly Earnings, a gauge of wage inflation, increased by 4.1% during the same month. The market anticipated growth of 3.9%.

The US Treasury bond yields rose sharply throughout the curve as a result of a strong US NFP headline print and wage inflation data. The 2-year Treasury yield, which is vulnerable to changes in Fed policy, increased by the most in the previous two months. Following a sharp drop in expectations on a US Federal Reserve (Fed) interest rate cut in September, the US Dollar strengthened, which hurt the price of non-interest-bearing gold.

According to the CME Group’s FedWatch Tool, markets reduced their bets on a 25 basis points (bps) rate cut in September to about 43% from about 55% before the report. They now see roughly an even chance of two rate cuts by the end of 2024, compared to about a 68% chance seen before the NFP release, according to Reuters.

Early on Monday, the US dollar gained strength again as investors increased their bets on a postponed rate cut by the Federal Reserve ahead of Wednesday’s Fed policy announcements and the US Consumer Price Index (CPI) data.

Additionally, traders take into account the growing political unrest in the Eurozone, particularly because French President Emmanuel Macron called early elections on Sunday and dissolved parliament following exit polls indicating his alliance lost handily to Marine Le Pen’s far-right National Rally (RN) party in the European elections.

The political unpredictability in France may keep pushing the EUR/USD pair down and give the US Dollar more legs at the expense of the price of gold.

A new trading catalyst for the price of gold will likely come from the US Dollar’s dynamics and risk sentiment, as there won’t be any significant US economic news on Monday.