Gold rises 1.50% as Fed holds interest rates, Powell stresses job market

The gold price rose more than 1.50% after the Fed kept interest rates on hold.
Powell emphasizes the growing importance of U.S. employment data, with the nonfarm payroll report being key.
The U.S. dollar index fell 0.42% as Treasury yields fell amid the Federal Reserve’s balanced approach to inflation and employment.

Gold prices rose sharply delayed in the North American session after the Federal Reserve decided to keep interest rates unchanged. Federal Reserve Chairman Jerome Powell suggested that US employment data will start to play a key role in setting monetary policy. XAU/USD is trading at $2447, up over 1.50%.

Wall Street trades with profits after Powell’s press conference. He said the disinflation process has “broadened” and recognized downside risks in the labor market. Powell added, “We don’t think of the labor market as it is today as a likely source of inflationary pressures,” and said if they see a decline in the labor market, “we should respond.”

After those remarks, Friday’s July Nonfarm Payrolls report will be a key piece of the puzzle as the Fed turns toward more focus on hiring. Market participants priced in 70 basis points (bps) of rate cuts by the end of the year after Powell’s remarks.

In their monetary policy statement, Fed officials noted:The Committee does not expect it would be appropriate to lower the target range until it has greater confidence that inflation is moving sustainably toward 2 percent..” They acknowledged that inflation remains “somewhat elevated” despite easing and said risks from the dual mandate had become more balanced.

After Powell’s press conference, U.S. Treasury yields fell sharply, with the benchmark 10-year U.S. Treasury rate at 4.066%, down almost eight basis points, weakening the Greenback. The U.S. Dollar Index (DXY), which tracks the greenback’s performance against six other currencies, fell 0.42% to 104.03.

Gold bullion prices have surged on rising geopolitical risks following a weekend attack by Hezbollah on Israel, which responded this week with an attack that killed Hamas leader Ismail Haniyeh in Iran. Gold demand is sheltered due to events in the Middle East, according to Kyle Roddy, a market analyst at Capital.com.

The US economic schedule revealed that private employment slowed in July, according to the Automatic Data Processing (ADP) Employment Change report. In addition, building permits recovered from a decline in May, while the Employment Cost Index (ECI), sought by the Fed as a measure of inflationary pressures on wages, fell in the second quarter of 2024.

Daily Market Factors Review: Gold Price as Data Supports Fed Rate Cut

ADP’s July employment data showed private sector employment rose by 122,000, down from an estimate of 150,000 and down from the 155,000 achieved in June.
The Employment Cost Index (ECI) fell from 1.2% to 0.9% quarter on quarter, below the forecast level of 1%.
In the US, the number of pending home sales rose 4.8% month-on-month in June, exceeding estimates of 1.5% after a 1.9% decline in May.
The CME FedWatch tool shows the central bank will cut rates by 25 basis points (bps) from current levels at its September meeting.
Traders are also eagerly awaiting the release of the July Purchasing Managers’ Index (PMI) for the manufacturing sector and nonfarm payroll (NFP) data, which will be released on Thursday and Friday, respectively.

Technical Analysis: Gold Price Consolidates Above $2,400

According to the daily XAU/USD chart, the uptrend remains intact, although buyers are getting some respite as the non-yielding metal is trading sideways at around $2,400. As measured by the Relative Strength Index (RSI), the momentum favors buyers, although economic news and geopolitical risks could affect gold prices.

If XAU/USD breaks above $2,450, the next resistance will be the all-time high at $2,483 ahead of $2,500. On the other hand, if gold falls below $2,400, key support levels will come into play.

The first support will be the July 30 low at $2,376, followed by the 50-day basic moving average (SMA) at $2,359. Further losses will come below the 100-day SMA at $2,331.