Gold prices plunged after the US jobs data shock dashed hopes of a rate cut ahead of the latest inflation report this week.
Last week's trading session saw a black history for yellow metal fans when the price of gold fell sharply by 4.68 percent to close at 4327.88 dollars per ounce. This fall of more than 212 dollars erased all the gains accumulated in the face of mechanical selling pressure from investors.
It all started when the US non-farm payrolls report recorded an extraordinary figure of 172,000 new jobs, far exceeding initial forecasts. This figure reversed the expectations of financial markets that had previously bet that the Federal Reserve or Fed would cut interest rates.
Following the data, the US 10-year Treasury bond yield soared along with the increasingly powerful US Dollar index.
The strong US dollar has increased the cost of owning gold for foreign buyers, while high bond yields have drawn capital out of non-dividend assets like gold.
The situation has worsened as the tech stock market has collapsed, triggering margin calls for the portfolios of giant institutions. In order to get cash quickly, fund managers have been forced to sell assets with the largest existing profits, and gold has fallen victim to this liquidity.
The Dilemma of High Crude Oil Prices
The price of crude oil, which has been hovering around $90 a barrel, has also been a hidden enemy for gold's current performance. High energy costs have contributed to sticky inflation, thus giving the Fed a strong reason to keep interest rates high for a longer period.
Despite being heavily pressured by short-term traders, gold's decline has been saved by passive buying from global central banks at low prices. The presence of these buyers has acted as a buffer that has slowed the price decline from continuing to collapse to a deeper floor.
This week will see a real shock for the gold market when the Consumer Price Index or CPI report is due to be published on Wednesday. This inflation data will be the judge of whether the Fed's tightening narrative will be permanent or give gold some breathing room.
If the inflation figures emerge higher, gold risks testing the support level around the $4212.62 level. Investors are advised to be cautious as the market trend is currently dominated by sellers as long as the gold price fails to break through the key resistance line at $4481.78.
