Solid employment data dampens gold, but deficit concerns continue to support prices
After holding critical support near $3,250 an ounce, the gold market is poised to end a shortened trading week with solid gains. However, according to some analysts, the precious metal still lacks a strong bullish catalyst to break out of its current consolidation phase.
Despite its rebound above $3,300 an ounce, gold is heading into the long weekend off its recent highs, as solid employment growth in June has sapped some momentum from the market.
The gold market fell roughly 1% in response to data showing that the U.S. economy created 147,000 jobs last month, exceeding economists’ expectations of 111,000. At the same time, the unemployment rate dropped to 4.1%.
The stronger-than-expected nonfarm payroll numbers effectively erased any market expectations that the Federal Reserve might cut interest rates later this month. Markets had already been pricing in only a 25% chance of a rate cut.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, said the selloff in gold is not surprising as the market recalibrates its interest rate expectations. However, he added that the broader uptrend in gold remains intact, even as prices continue to move sideways.
“Gold probably needs the prospect of a rate cut to break higher, which means it remains stuck for now,” he said. “During the upcoming low-liquidity weeks, gold needs to hold $3,245 and silver $35.30 to avoid a deeper, technically driven correction. I maintain my bullish outlook, as the key drivers behind gold’s strength have not gone away—and won’t anytime soon.”
James Stanley, Senior Market Strategist at Forex.com, adopted a bullish stance despite recent market volatility, viewing any pullback as a buying opportunity.
“Traders can get lost in day-to-day volatility and lose sight of the bigger picture,” he said. “Gold is focusing on that bigger picture. It’s trying to see what’s around the corner. Governments are going to spend, spend, spend until they can’t anymore, and this continued debasement of fiat currencies will keep supporting gold.”
Stanley’s optimism on gold prices comes as the U.S. Congress advances its budget bill. Gold rose back above $3,300 an ounce earlier this week after the Senate passed its version of the bill. The House of Representatives is now debating the measure, working to secure enough votes for passage before July 4.
According to Congressional Budget Office estimates, the proposed legislation is expected to increase the federal deficit by more than $3 trillion over the next 10 years. This comes as the U.S. national debt has already surpassed $37 trillion.
Analysts have noted that persistent deficit spending by the U.S. government will continue to pressure the dollar, which is ending the week at a new multi-year low near 97 on the index.
In addition to debt concerns, analysts also expect the greenback to face further challenges next week as President Donald Trump’s global trade war returns to focus.
Trump's 90-day pause on sweeping global tariffs is set to expire on July 9. Although the White House claims some progress has been made on global trade, no deals with the country’s major trading partners have been finalized.
Michael Brown, Senior Market Analyst at Pepperstone, said that while shifting interest rate expectations may provide some short-term support for the U.S. dollar, he believes the broader downtrend will persist, bolstering gold’s bullish outlook.
“I still think the main driver is inflows, as reserve managers reallocate away from the USD and diversify into alternatives like gold,” he said. “That should reinforce gold’s bull case for now. So yes, I see this as a buy-on-dips scenario, with the path of least resistance still leading higher—likely back toward those all-time highs around $3,500 an ounce before year-end.”
Source: https://www.kitco.com/