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Fed’s move favors greenback

Jun 30, 2021 05:40

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Gold was trading around an over two-month low on Wednesday as investors are waiting for U.S. jobs data for further clarity on the Federal Reserve’s policy stance, with the precious metal heading for its worst monthly drop since November 2016.

The dollar clung to recent gains on Wednesday as viral woes raised concerns in a market that is already on the brink of employment data. Bullion prices were down 7.5% for the month, weighed down by the Fed’s sudden hawkish shift. But they were up 3.3% for the quarter.

“Gold has consolidated near the lows since the Fed’s strategy shift on monetary policy and it is now awaiting U.S. economic data for further guidanceā€ said an Analyst. Non-farm payrolls on Friday is going to be the main driver for the market in the near term, if it shows higher wage inflation and strong job growth, we’ll see the next floor in gold.” U.S. nonfarm payrolls are likely to rise by 690,000 jobs this month, compared with 559,000 in May, according to a recent news. If the actual numbers come in close or above the economic forecasts it could put continued pressure on gold.

Fed Governor Christopher Waller said on Tuesday that he was “very optimistic” about the economy and that the central bank could start raising interest rates next year. U.S. consumer confidence jumped to its highest level in nearly 1-1/2 years in June as growing labour market optimism amid a reopening economy offset concerns about higher inflation. A Fed rate hike will increase the opportunity cost of holding bullion, dulling its appeal. Gold is seen as a hedge against inflation, although a Fed rate hike will increase the opportunity cost of holding bullion and dull its appeal.

The primary issue is whether or not the recent uptick in inflation is largely transitory or sustainable. The Fed maintains that a large percentage of the current hot (high) inflationary rate is transitory, citing supply chain issues and employment issues as businesses reopen in the United States. While it is obvious that upticks in inflation that have resulted supply chain shortages such as from higher new and used cars prices are due to microchips sortages are temporary, higher pricing in energy and food costs most certainly could be longer-lasting.

XAU/USD 4 Hour Chart:

Support: 1748.0 (S1), 1735.1 (S2), 1719.7 (S3).

Resistance: 1776.3 (R1), 1791.7 (R2), 1804.6 (R3).

Amidst this the yellow metal picks up low upon U.S. Jobs data and highest inflation. We expect a bearish trend for XAUUSD.

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