Gold drops on stellar US NFP report, dims July Fed rate cut hopes
- Gold tumbles 0.80% to $3,332 as robust jobs data lifts US Dollar.
- Unemployment Rate nears 4%, challenging weak hiring seen in ADP report.
- Traders now price in only two Fed cuts in 2025, down from 65 bps earlier.
- Bessent: Fed rate call is theirs; Powell’s successor to be picked in fall.
Gold price fell 0.80% on Thursday as a strong US Nonfarm Payrolls report strengthened the US Dollar, leading market participants to believe it unlikely that the Fed could cut rates at the July meeting. At the time of writing, the XAU/USD trades at $3,332, having reached a daily high of $3,365.
June’s US employment report crushed estimates and also exceeded May’s figures. Worth noting that the Unemployment Rate fell toward the 4% threshold, indicating that the labor market remains solid. The data questions Wednesday’s ADP National Employment Change report, which showed that private companies decreased hiring by -33K.
Consequently, the Greenback rose, underpinned by a jump in US Treasury yields. Money market futures data showed that investors are pricing in two rate cuts by the end of 2025, contrary to 65 basis points (bps) of easing, priced at the start of July.
The data reaffirmed the Federal Reserve's (Fed) stance to hold rates flat until it sees signs of weakness in the labor market or a resumption of the deflationary process.
Aside from this, US Treasury Secretary Scott Bessent announced that more trade deals are expected to materialize, following the announcement of the Vietnam agreement. He added that the Fed is the one to decide on rates and hinted that the administration would begin working on Powell's replacement in the fall.
In the meantime, the US House of Representatives passed Trump’s “One Big Beautiful Bill” toward a final vote. The fiscal budget is expected to increase the US debt by $3.3 trillion over the next decade.
Daily digest market movers: Gold price retreats as US yields and US Dollar advance
- Gold price is on the defensive as US Treasury yields and the US Dollar rise. The US 10-year Treasury bond yield is up five basis points a 4.334%. US real yields are also up five bps at 2.034%. Furthermore, the US Dollar Index (DXY), which tracks the Greenback’s performance against a basket of currencies, is up 0.34% at 97.10.
- The US Bureau of Labor Statistics (BLS) reported that the economy added 147,000 jobs in June, slightly above expectations of 110,000 and up from May’s revised figure of 144,000. The Unemployment Rate declined to 4.1% from 4.2%. The data supports Fed Chair Jerome Powell’s cautious, wait-and-see approach as the central bank monitors the potential inflationary impact of trade tariffs.
- Initial Jobless Claims for the week ending June 28 fell to 233,000, below the expected 240,000 and lower than the previous week’s reading, signaling a resilient labor market. Meanwhile, the ISM Services PMI rose to 50.8 in June from 49.9 in May, indicating the sector has returned to expansion territory.
- Aside from this, the US House of Representatives is likely to pass Donald Trump’s fiscal package bill on Thursday. Once done, this will allow Trump’s self-imposed deadline on July 4 to sign the bill.
- Atlanta Fed President Raphael Bostic said that he favors a wait-and-see stance to monetary policy due to uncertainty over economic policy. He added that increases to prices, tariff-related, could cause a jump in inflation readings over the next year.
- The World Gold Council said that central banks added 20 tonnes of the yellow metal in May, with Kazakhstan leading the way. The National Bank of Kazakhstan reported 7 tonnes, followed by the Central Bank of Turkey, which reported 6 tonnes, alongside the National Bank of Poland.
- Money markets suggest that traders are pricing in 50 basis points of easing toward the end of the year, according to Prime Market Terminal data.
XAU/USD technical outlook: Gold price trades sideways near $3,350
Gold price is poised to consolidate amid buyers’ lack of commitment to conquer the $3,400 figure despite price action still exhibiting a successive series of higher highs and higher lows. However, traders must clear the June 16 high at $3,452 if they are to challenge the $3,500 record high figure in the near term.
Conversely, if XAU/USD tumbles below $3,300, the next support would be the June 30 swing low of $3,246.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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