Gold Prices Plunge After Strong US Job Data and China Halt in Gold Buying

Gold Prices Drop Below $2310 Following US Jobs Report

Gold (XAU/USD) fell to $2310 on Friday following the release of the U.S. Nonfarm Payrolls (NFP) data, which showed the U.S. economy added 272,000 jobs in May, exceeding expectations of 185,000 and surpassing April's revised figure of 165,000.

Wage Inflation and Interest Rate Implications

The U.S. Bureau of Labor Statistics (BLS) report also indicated that average hourly earnings rose 4.1% year-over-year in May, beating forecasts of 3.9% and surpassing April's 4.0% increase. The unemployment rate also rose to 4.0%, slightly above the expected 3.9%. This data suggests rising wage inflation, which could lead to higher core and headline inflation, potentially prompting the Federal Reserve to delay interest rate cuts. Maintaining higher interest rates for a longer duration is negative for gold as it increases the opportunity cost of holding non-yielding assets.

China's Halt in Gold Buying Adds to Downward Pressure

Gold prices had already been declining following news that the People's Bank of China (PBoC) abruptly stopped buying gold in May after 18 months of continuous purchases. Official data from the PBoC showed no change in gold reserves at 72.8 million troy ounces at the end of May, the same figure as at the end of April.

Central Bank Buying and Gold Price Dynamics

Central bank buying, particularly in Asia, has been a key driver of gold prices, likely contributing to the 2024 rally that saw gold reach a record $2450 in May. According to the World Gold Council (WGC), unreported over-the-counter (OTC) purchases by central banks have been a significant factor in gold's strength. Central banks in Asian countries and emerging markets have been hoarding gold reserves as a hedge against the threat of currency devaluation, especially against the U.S. dollar. The Fed's revised interest rate expectations in the spring further strengthened the dollar, accelerating the hoarding trend.

Technical Analysis: Gold Breaks Below Range

Gold's price broke below a small range extending from $2,315 to $2,358 and has since reversed course, falling back into the range. The 4-hour chart shows that gold broke out of its small range on Thursday, reaching the initial target of $2,385 before reversing and falling again on Friday. Breaking below the $2,315 range reactivates the downside targets created by the trendline break. The first target to watch is $2,303 - the 0.618 Fibonacci extension of "a." A stronger downward move could even push gold to the $2,279 support.