Gold Heads to a losing Month Amidst Hawkish Fed Repricing & Ahead of US NFPs

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XAU/USD Analysis

The precious metal started May with new record highs, but changed course and heads towards a losing month, after a significant correction, due to a sharp shift in expectations around the Fed's rate path.

US Core PCE inflation ticked up to o 4.6% y/y in April according to Friday's data, while headline PCE accelerated 4.4% y/y, the first increase in almost a year. More to it, the labor market remains very tight, with elevated wages and unemployment at five-decade lows.

This makes the case for a pause hard and markets have been moderating their optimism for an end to the tightening cycle and rate cuts. Friday's hot inflation report added to the hawkish repricing and CME's Fed Watch Tool currently assigns the highest probability to another 0.25% rate hike in June.[1]

Friday Employment Report form the US will potentially be important for market expectations, as it will be taken into account by Fed policymakers ahead of the June 14 rate decision.

This higher-for-longer anticipation has harmed XAU/USD, which heads towards the conclusion of a losing month. Bears threaten the lower border of the daily Ichimokou Cloud as we had waned from our last analysis. This creates risk for further losses towards the 200Days EMA (1,883-4), but the 2023 lows are distant (1,804).

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XAU/USD tries to catch a breath, as markets appear a bit weary around the US debt ceiling agreement. The deal has to pass through Congress and that is not a foregone conclusion. Any negative surprise could potentially become a tailwind for Gold.

The precious metal holds the Ichimoukou border and this gives it a chance to rebound towards the EMA200 (1,980), but a strong catalyst would be required for daily closes above it that would bring the all-time highs back in the spotlight.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 04 Oct 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

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