Gold Prices Fall as Traders Raise Odds of More Fed Tightening after Solid Jobs Data

GOLD PRICE OUTLOOK:

• Gold prices sink as traders increase odds of May FOMC interest rate hike following last Friday’s robust U.S. labor market data
• U.S. dollar strength in the FX space also undermines precious metals
• Despite Monday’s pullback, XAU/USD retains a bullish profile over the medium term

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Gold prices (XAU/USD) retreated on Monday, falling more than 1.0% and threatening to break below the psychological $2,000 level, undermined by broad-based U.S. dollar strength and increased odds of additional Fed tightening following remarkably strong U.S. labor market data released last Friday.

The latest U.S. employment report, which showed the U.S. economy added 236,000 jobs in March, led traders to increase bets that the FOMC will deliver another quarter-point rate rise at its May meeting, implicitly reducing the likelihood of a pause to the hiking cycle next month.

A continuation of the central bank’s tightening campaign will stand to benefit the U.S. currency, creating headwinds for the dollar-denominated yellow metal and preventing its prices from decisively trading above the $2,000 threshold in the coming days and weeks. This, however, does not mean that the bullish case has been invalidated.

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Despite the uncertainty about the near-term monetary policy path, the Fed will likely adopt a dovish stance at some point in the not-so-distant future once the economy takes a turn for the worse, burdened by the lagged effects of aggressive hikes and the adverse impact of the banking sector turmoil. When this happens, gold will be well-placed to stage a strong rally.

Focusing price-action analysis, XAU/USD is currently hovering above key technical support at $2,000 following its recent pullback. If this floor is taken out convincingly, sellers could launch an attack on $1,975, followed by $1,940.

On the flip side, if bulls regain control of the market and spark a rebound from present levels in short order, the first resistance to keep an eye on is located at $2,050 near April’s swing high. If prices manage to breach this ceiling, buying interest could pick up momentum, setting the stage for a climb toward $2,075, gold’s all-time peak.

GOLD PRICES TECHNICAL CHART

Gold Futures Technical Chart Prepared Using Trading View