Gold slips on strong US jobs data, Fed rate cut expectations

The week started on a positive note for the yellow metal as spot gold rose to $2,387 on Friday, the highest level since May 22, following rate cuts from the Bank of Canada and the ECB. However, the gains were short-lived, as the metal crashed after a robust US nonfarm payroll report. The US employers added 272 K jobs in May, surpassing the expected 180 K. Despite the strong job report, the Dollar Index weakened on rising Fed rate cut expectations and healthy risk appetite, closing with a gain of 0.70% at 104.93 on Friday.

The US yields also tested 4.271% on Friday, the lowest level since April 1, but a solid job report led to a sharp decline in US bonds, with the 10-year yields closing at 4.43%. Spot gold closed with a loss of 3.49% at $2,294 on Friday and fell nearly 1.40% in the week. The China Central Bank paused gold buying last month, breaking its 18-month long spree of continuous buying. It bought only 60 K ounces of gold in April compared with 160 K ounces in March and 390 K ounces in February. This pause is a bearish development for the metal.

However, despite the weekly loss, investors are expected to buy the dips for medium to long-term positions as fundamentals remain constructive. The rate cut has been delayed, not canceled, and central banks are buying gold at a healthy pace. Chinese Central Bank buying is expected to return sooner than later as prices are significantly down from the cycle high of $2,450. The US unemployment rate has risen, and other central banks have cut rates; all these factors are positive for the metal.

Next week, the US Federal Reserve will deliver its monetary policy decision. No change in the Fed fund rate is expected, but traders will be looking for clues to rate cuts and other major central banks' actions. Major US data on tap next week includes CPI (May), PPI (May), University of Michigan sentiment (May) and inflation expectations. China's PPI and CPI will also be closely watched for gauging the strength of the Chinese economy. Out of Europe, the UK's April job report and monthly GDP (April), and Germany's CPI (May final) will be of particular interest to traders.

Spot gold is expected to trade with a bearish bias on rising yields and China's gold-buying pause. The metal may test the key support at $2,277 in the near term, though some short covering is possible ahead of the US FOMC monetary policy decision and the CPI data. The next major support is at $2,250, and resistance is at $2,315/ $2,330.

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