It will be a risky week for Gold investors with several high-impact macroeconomic data releases from the US and the Fed’s policy announcements carrying the potential to trigger wild fluctuations.
At the beginning of the week, NBS Manufacturing PMI and Non-Manufacturing PMI from China will be watched closely by market participants. In case the PMI surveys point to an ongoing expansion in China, the world’s biggest gold consumer’s, business activity, XAU/USD is likely to keep its footing. In case one of those PMIs drop below 50 unexpectedly, Gold price could edge lower in the near term.
On Monday, the US economic docket will feature the ISM Manufacturing PMI for April, which is unlikely to have a noticeable impact on the USD’s valuation. On Wednesday, the ISM Services PMI survey and the ADP’s private sector employment report should be ignored by investors ahead of the Fed’s policy decisions.
The US central bank is widely expected to raise its policy rate by 25 bps to the range of 5%-5.25% following the May policy meeting. If the policy statement or FOMC Chairman Jerome Powell says that the Fed will pause its hiking cycle to reassess the economic situation, the immediate reaction is likely to weigh on US yields and open the door for a rally in XAU/USD. However, Powell could reiterate that they don’t intend to lower the policy rate for the remainder of the year and explain that a pause in tightening does not necessarily mean that they can’t go back to hikes if they were to see the need for it. In that scenario, XAU/USD could reverse its direction even if it spikes higher initially.
Markets will also pay attention to Powell’s comments on the financing situation. After the collapse of the Silicon Valley Bank, Powell said that the monetary policy has to be tight enough to bring down inflation but noted that some of that tightness could come from credit conditions. In case the Fed says that they don’t see any significant tightening in lending, that could be seen as a hawkish remark and help the USD gather strength and vice versa.
On Friday, the US Bureau of Labor Statistics will publish the April jobs report. Nonfarm Payrolls (NFP) are forecast to increase by 181,000 following March’s 236,000 growth. Wage inflation, as measured by the Average Hourly Earnings, is expected to edge higher to 4.4% on a yearly basis from 4.2%. Generally, a stronger-than-expected increase in NFP, especially if it’s accompanied by a strong wage inflation reading, should have a positive impact on the USD’s valuation and hurt XAU/USD. On the other hand, a NFP reading close to 100,000 or lower should have the opposite effect on the pair.
Having said all of that, it’s worth noting that it will not be easy to navigate through next week’s events. It could be a good idea to monitor the action in the US Treasury bond yields to have a more clear view of the bigger picture. The 10-year US T-bond yield has been fluctuating between 3.3% and 3.6% since the Fed’s March policy meeting. A move outside of this range could provide a directional clue for Gold price due to its strong inverse correlation with yields.
At the beginning of the week, NBS Manufacturing PMI and Non-Manufacturing PMI from China will be watched closely by market participants. In case the PMI surveys point to an ongoing expansion in China, the world’s biggest gold consumer’s, business activity, XAU/USD is likely to keep its footing. In case one of those PMIs drop below 50 unexpectedly, Gold price could edge lower in the near term.
On Monday, the US economic docket will feature the ISM Manufacturing PMI for April, which is unlikely to have a noticeable impact on the USD’s valuation. On Wednesday, the ISM Services PMI survey and the ADP’s private sector employment report should be ignored by investors ahead of the Fed’s policy decisions.
The US central bank is widely expected to raise its policy rate by 25 bps to the range of 5%-5.25% following the May policy meeting. If the policy statement or FOMC Chairman Jerome Powell says that the Fed will pause its hiking cycle to reassess the economic situation, the immediate reaction is likely to weigh on US yields and open the door for a rally in XAU/USD. However, Powell could reiterate that they don’t intend to lower the policy rate for the remainder of the year and explain that a pause in tightening does not necessarily mean that they can’t go back to hikes if they were to see the need for it. In that scenario, XAU/USD could reverse its direction even if it spikes higher initially.
Markets will also pay attention to Powell’s comments on the financing situation. After the collapse of the Silicon Valley Bank, Powell said that the monetary policy has to be tight enough to bring down inflation but noted that some of that tightness could come from credit conditions. In case the Fed says that they don’t see any significant tightening in lending, that could be seen as a hawkish remark and help the USD gather strength and vice versa.
On Friday, the US Bureau of Labor Statistics will publish the April jobs report. Nonfarm Payrolls (NFP) are forecast to increase by 181,000 following March’s 236,000 growth. Wage inflation, as measured by the Average Hourly Earnings, is expected to edge higher to 4.4% on a yearly basis from 4.2%. Generally, a stronger-than-expected increase in NFP, especially if it’s accompanied by a strong wage inflation reading, should have a positive impact on the USD’s valuation and hurt XAU/USD. On the other hand, a NFP reading close to 100,000 or lower should have the opposite effect on the pair.
Having said all of that, it’s worth noting that it will not be easy to navigate through next week’s events. It could be a good idea to monitor the action in the US Treasury bond yields to have a more clear view of the bigger picture. The 10-year US T-bond yield has been fluctuating between 3.3% and 3.6% since the Fed’s March policy meeting. A move outside of this range could provide a directional clue for Gold price due to its strong inverse correlation with yields.