The price of gold fell by about 0.5% after it jumped by more than 1% on Friday on the back of data on the US labor market, which increased the likelihood of easing the Fed's monetary policy. Today's price correction was caused by partial profit-taking, the strengthening of the US currency and news from China.
Data on Friday showed that nonfarm payrolls rose by 206,000 in June after a downward revised 218,000 increase (from 272,000) in May. The June reading was below the average monthly gain of 220,000 over the prior 12 months. Meanwhile, the unemployment rate edged up to 4.1 per cent from an unrevised 4.0 per cent in the prior month. This marked the highest rate since November 2021 (4.1 per cent). Economists had expected the nonfarm payrolls to rise by 190,000 and the jobless rate to be unchanged at 4.0 per cent. Hourly earnings for private-sector workers increased by 0.3 per cent m-o-m (or $0.10) to $35.00, following an unrevised 0.4 per cent m-o-m rise in May. Economists had forecast the average hourly earnings to advance by 0.3 per cent m-o-m in June. Over the year, the average hourly earnings climbed 3.9 per cent in June, following an unrevised 4.1 per cent gain in the previous month. This represented the weakest increase since June 2021 (+3.9 per cent). Economists had predicted the annual wage to surge by 3.9 per cent in June. According to the CME FedWatch Tool, markets see a 6.7% probability of a 25 basis point rate cut at the Fed meeting in July, a 75.7% probability of a rate cut in September, and a 85.9% probability of monetary policy easing in November. Lower rates reduce the opportunity cost of holding non-yielding bullion.
Meanwhile, a report by the Central Bank of China showed that in June the country's gold reserves did not change and amounted to 72.8 million troy ounces. The central bank opted not to add to reserves in May, ending an 18-month buying spree. However, a report from India suggested the central bank probably increased its bullion reserves by the most in almost two years.
This week, investors will focus on the speech by Fed Chairman Jerome Powell, as well as data on the US CPI. Experts said Powell's dovish statements, as well as a weaker-than-expected CPI report, could give gold a boost and push prices to new highs.