Gold Rallies as US Dollar Sinks on Jobless Claims Surge, XAU/USD Eyes Bullish Engulfing

Gold, XAU/USD, US Dollar, Jobless Claims, Technical Analysis – Asia-Pacific Briefing:

• Gold prices rallied on Thursday as the US Dollar weakened
• Unexpected rise in US jobless claims dented Treasury yields
• XAU/USD Bullish Engulfing in focus as prices test support

Gold Prices Benefit Amid a Softer US Dollar and Treasury Yields

Gold prices rallied 1.3 percent on Thursday, marking the best single-day performance since May 2nd, which was over a month ago. The yellow metal’s ascent coincided with a softer US Dollar. The DXY Dollar Index sank -0.76 percent, which was the worst performance over the course of 24 hours since March 13th, which was almost 3 months ago.

Gold often behaves as an anti-fiat trading instrument. It should be noted that there was a decline in Treasury yields on Thursday, especially longer-term maturities. The 10-year rate sank 2.03 percent, which was a day after surging +3.74% due to unexpected tightening from major central banks this week. As such, a softer US Dollar and weaker government bond yields combined to create a prime environment for gold.

A closer look at the past 24 hours showed that financial markets paid much attention to the most recent US initial jobless claims report. Those unexpectedly rose 261k last week, much higher than the 235k consensus. It also marked the highest point since November 2021. This data is some of the timeliest we have on the state of the US labor market.

The unexpected rise in jobless claims poured some cold water on bets that the Federal Reserve may have to raise rates again in July. The consensus for next week is that the central bank pauses tightening. Given that the economy has been mostly holding up amid rising recession concerns, the jobless claims report by itself is likely not enough to bring in a panic about an impending recession. Stock markets rallied broadly.

With that in mind, this is setting gold up for potential follow-through over the remaining 24 hours. The economic docket notably dies down heading into the end of the week. As such, this may leave market sentiment in the driver’s seat for where XAU/USD may go from here.

Gold Technical Analysis

Taking a look at the daily chart, gold has left behind a Bullish Engulfing candlestick pattern around key support at 1936. This conflicts with a recent bearish Death Cross formed between the 20- and 50-day Simple Moving Averages. As such, keep a close eye on follow-through from here. Extending gains place the focus on the May high. Otherwise, breaking lower exposes the 38.2% Fibonacci retracement level at 1903.

XAU/USD Daily Chart

Chart Created in TradingView

— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com