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Gold was nearly unchanged on Friday but headed for a fifth consecutive weekly decline, as the dollar and Asian stocks held firm and the market awaited U.S. nonfarm payroll data.
Bullion was little affected in the previous session with the European Central Bank keeping its rates unchanged, and its President Mario Draghi said inflation would likely remain very low or negative in the next few months.
Investors remained cautious ahead of the U.S. labor data due later today at 7:30 am EDT, a solid reading of which could heighten expectations for a US interest rate move as early as the Federal Reserve’s June 14-15 policy meeting. If U.S. employment figures are strong and inflation moves closer to the 2 percent target, the U.S. central bank may raise the federal funds rate (the rate it charges to lend money to other U.S. banks). Higher interest rates mean investors can earn more when holding the greenback, thus increasing the opportunity cost of holding non-interest yielding gold, and gold prices suffer.
Gold prices and the U.S. dollar have a strong negative correlation. The US dollar climbed against most major currencies today as jobs data from the country came out positive on Thursday. According to the May ADP National Employment Report, US private sector employment increased by 173,000 jobs from April to May. The dollar index, which is a strong indicator of gold’s next move, was up 0.10 percent at 95.552 in early trading Friday.
Gold, which has gained about 14 percent so far this year, has been under pressure after the latest Fed meeting minutes released in May and comments from senior U.S. central bank officials, including chief Janet Yellen, boosted expectations of an imminent rate rise. Gold is now down 6.3 percent from the 2016 high it hit on May 2. Earlier this week, Bloomberg reported that hedge funds have cut their gold holdings since January.
Yellen is due to speak on Monday, the last chance for the Fed to communicate with markets before it begins a blackout period ahead of its policy meeting on June 14-15.
Fig. GOLD D1 Technical Chart
Spot gold is currently nearly flat at 1212.34 per ounce. It touched a low of 1206.60 earlier in the session and remained on track for its fifth straight weekly loss. ADX is at 39.58, along with DI- staying above DI+, suggesting bearish market. RSI is at 36.64, close to the oversold territory, indicating that the selling power is very strong. The commodity price is anticipated to consolidate further in a narrow range.
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