Gold continues to decline after U.S. nonfarm payrolls data beat expectations

The decline in gold prices following the release of U.S. nonfarm payrolls data for May shows higher-than-expected change in employment and wages.
Gold was already trending lower after PBoC reserves disclosure data showed no change in May compared to April.
The short-term technical picture remains volatile as gold rises and then falls.

Gold (XAU/USD) fell again to $2,310 on Friday after the release of US non-farm payrolls (NFP) data, which showed the US economy added 272,000 jobs in May. jobs, while 185 thousand were expected. The result was also higher than April’s result, revised down to 165,000.

A report from the U.S. Bureau of Labor Statistics (BLS) showed average hourly earnings increased 4.1% y/y from a revised 4.0% raise in April and beat estimates of 3.9%.

However, the unemployment rate increased to 4.0%, although the forecast was 3.9% from 3.9% earlier,

Overall, the BLS data suggests that wage inflation is rising, which could translate into higher core and headline inflation. This, in turn, may prompt the Federal Reserve (Fed) to delay its decision to cut interest rates. Maintaining higher interest rates for an extended period of time is bad for gold because it raises the opportunity cost of holding unprofitable assets.

Gold was already falling on Friday following news that the People’s Bank of China (PBoC) had abruptly halted gold purchases in May after an 18-month purchase period.

The price of gold falls after the People’s Bank of China suspends further purchases

Gold is trending lower at the end of the week following news that PBoC gold reserves were unchanged at 72.8 million troy ounces at the end of May, exactly the same as at the end of April, according to official PBoC data on Friday.

The data follows forceful buying in April, which pushed China’s gold reserves in the PBoC to an all-time high, accounting for 4.9% of total reserves, after 18 consecutive months of growth.

Purchases by central banks, especially in Asia, are now a key factor influencing the price of gold. This was likely fueled by the 2024 rally that saw gold reach a record high of $2,450 in May. According to According to the World Gold Council (WGC), unreported over-the-counter (i.e. not through exchanges) purchases by central banks have been a significant factor in gold’s strength.

“Looking at our Gold Return Attribution Model (GRAM), there was no single variable that stood out as a key factor in May,” WGC said in its May report. “Momentum and a weaker US dollar were positive factors, but their impact was marginal. And while the unexplained component of the model decreased significantly in May, it was still by far the largest factor. “As we have noted previously, we believe this is partially attributable to strong over-the-counter purchasing, including purchases by central banks, which have contributed significantly to recent gold returns.”

Central banks in Asia and emerging market countries are building up gold reserves to protect themselves against the threat of devaluation of their own currencies, particularly against the US dollar (USD). The spring revision of interest rate expectations by the Federal Reserve (Fed) led to a strengthening of the dollar, which increased the tendency to accumulate reserves.

That said, the recent run of faint U.S. data means investors are renewing their guess that the Fed will start cutting interest rates in September, with the probability at around 67%, according to CME’s FedWatch tool, which bases its estimate on the 30- daily FedWatch data from the USA Data on prices of fund futures contracts.

Additionally, expectations regarding interest rates are falling at the global level. On Wednesday, the Bank of Canada (BoC) cut the overnight rate to 4.75% from 5.00%, and the European Central Bank (ECB) cut it a day later. The release of lower inflation data in Switzerland has now sparked speculation that the Swiss National Bank (SNB) may also cut interest rates at its June 20 meeting, following an earlier cut in March.

Technical analysis: Gold breaks above the upper range, then falls

The price of gold broke out from the top of a mini range, stretching from around $2,315 to $2,358, but has since reversed course and fallen. It is now back in range.

XAU/USD 4-hour chart

A break below the low in the $2,315 range would reactivate the downside targets generated by the trendline break. The first continuation target is the level of USD 2,303 – extrapolation of “a” using the Fibonacci method at the level of 0.618. A stronger move down could even push gold to the support level of $2,279. Goals are calculated based on the length of movement before the break.

On Thursday, gold broke out of its mini-range and hit an initial target of $2,385, a Fibonacci extrapolation of 0.618 of the range height from the higher breakout point, before reversing direction on Friday and falling again.

Despite near-term weakness, the precious metal’s medium- and long-term trends remain bullish and recovery risks remain high.