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Gold drops from record highs on upbeat US ADP Employment, Fed Powell’s speech in focus

  • Gold price eases from $2,285 on upbeat US ADP Employment.
  • Fed policymakers see no urgency for rate cuts.
  • Investors await the Services PMI and Fed Powell’s speech.

Gold price (XAU/USD) falls after refreshing all-time highs near $2,290 in Wednesday’s late European session on multiple tailwinds. The near-term demand for the precious metal is still upbeat due to deepening geopolitical tensions in Eastern Europe and the Middle East regions. Escalating geopolitical tensions have increased demand for safe-haven assets, providing strength to bullions. This is offsetting the impact of higher bond yields and waning Federal Reserve (Fed) rate cut expectations for the June meeting.

10-year US Treasury yields rise to 4.37% as Fed policymakers see no need to hurry for rate cuts due to a strong economic outlook and tight labor market conditions. Cleveland Fed Bank President Loretta Mester, “I think the bigger risk would be to begin reducing the funds rate too early.” Fed’s pivot to rate cuts could tighten the labor market further, which will eventually increase wage growth and revamp inflation. Generally, higher bond yields dampen Gold’s appeal as they increase the opportunity cost of holding investment in the latter.

This week, the major event will be the United States Nonfarm Payrolls (NFP) data, which will be published on Friday. The labor market data will influence market expectations for Fed rate cuts in June.

Daily digest market movers: Gold price correctly while US Dollar finds support

  • Gold price keeps rising as geopolitical tensions strengthen the safe-haven bid and the US Dollar corrects from fresh four-month highs. Rising geopolitical tensions lead investors towards safe-haven assets such as Gold.
  • In the eastern part of Europe, continuous drone attacks from Ukraine on Russian Oil refineries have resulted in a fresh escalation in the Moscow-Kyiv tensions. US President Joe Biden criticized the event of Ukraine targeting Russia’s Oil infrastructure as it could have drastic consequences for global Oil prices.
  • In the Middle East, Iran vows to retaliate on the deaths of their high-ranking commanders in an attack at the Iranian embassy in Damascus by the Israeli army. This has deepened fears of Iran’s direct entry into Israel-Palestine tensions. Moreover, the killing of seven aid workers in Gaza on Tuesday after an Israeli attack has also raised tensions between Israel and some of its main allies in the West.
  • Meanwhile, the US Dollar Index (DXY) finds support near 104.70 the US ADP has reported robust hiring by private employers in March. 184K job-seekers were hired against expectations of 148K and February’s reading of 155K, which were upwardly revised from 140K.  
  • Earlier, the US Dollar corrected even though Federal Reserve policymakers seem to be leaning towards delaying interest-rate cuts until later than June. Cleveland Fed Bank President Loretta Mester and San Francisco Fed Bank President Mary Daly spoke on Tuesday. They both suggested that the Fed sees more risk in cutting interest rates too early. Fed Mester added: “With labor markets and economic growth both being very solid, we do not need to take that risk.” Both policymakers see three rate cuts as “reasonable” this year.
  • Going forward, investors will focus on Fed Chairman Jerome Powell’s speech and the ISM Services PMI data for March. Powell is expected to provide cues about when the central bank will pivot to rate cuts. The ISM is expected to report that the Services PMI rose marginally to 52.7 from 52.6 in February.

Technical Analysis: Gold price falls slightly from fresh lifetime highs near $2,290

Gold price secures another milestone in Wednesday’s session. The precious metal prints a fresh all-time high near $2,290 after extending above Tuesday’s high of $2,275. However, the yellow metal struggles to continue its six-day winning spell as momentum oscillators have turned extremely overbought. The 14-period Relative Strength Index (RSI) tests 80.00.

The near-term demand is strong as the RSI has been oscillating in the bullish range of 60.00-80.00 for more than a month, making it a “buy on dips” contender. 

All short-to-long term Exponential Moving Averages (EMAs) are sloping higher, suggesting strong near-term demand. On the downside, March 21 high at $2,223 will be a major support area for the Gold price bulls.


Employment FAQs

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.


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