President Donald Trump announced on Wednesday that the United States has struck a trade agreement with Vietnam. The US will impose a lower, 20% tariff on goods imported from the Southeast Asian nation, and the deal will give the US tariff-free access to Vietnam’s markets.
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Meanwhile, negotiators from the US and India are pushing to land a tariff-reducing deal ahead of Trump’s July 9 deadline. The developments boost investors’ confidence and prompt some profit-taking around the safe-haven Gold price following a three-day winning streak.
However, Trump has indicated no signs of extending the negotiation deadline despite stalled discussions with Japan, another key trade partner. This keeps trade-related uncertainties in play, which, in turn, might continue to offer some support to the precious metal.
Economic Data
On the economic data front, the Automatic Data Processing (ADP) reported that US private payrolls fell for the first time in more than two years during June. In fact, the US private-sector employment unexpectedly declined by 33K compared to the downwardly revised rise of 29K.
This comes on top of Tuesday’s Job Openings and Labor Turnover Survey, or JOLTS report, and underscores a deteriorating trend in the US labor market. Moreover, a sluggish hiring environment might force the Federal Reserve (Fed) to start cutting interest rates again as early as this month.
In fact, traders are currently pricing in nearly a 25% chance of a rate cut by the Fed at the July 29-30 monetary policy meeting. Moreover, a 25 basis point rate cut in September is all but certain, and expectations for two rate reductions by the end of this year are also high.
Dovish Fed expectations should keep a lid on the US Dollar’s attempted recovery from a three-and-a-half-year low and contribute to limiting losses for the non-yielding yellow metal. Traders might also opt to wait for the release of the US Nonfarm Payrolls (NFP) report.
Gold struggles to find demand after Iran-Israel ceasefire
Gold started the week with a bullish gap following the news of the United States’ bombing of several Iranian nuclear sites over the weekend. But, in the second half of the day on Monday, the USD benefited from the better-than-expected S&P Global Purchasing Managers Index (PMI) data and made it difficult for XAU/USD to hold its ground.
As risk flows dominated the action in financial markets on Tuesday, Gold declined sharply and fell below $3,300 for the first time since early June. US President Donald Trump announced early Tuesday that Iran and Israel agreed to a ceasefire, easing geopolitical tensions and making it difficult for safe-haven assets to find demand.
Federal Reserve Chairman Jerome Powell
Later in the day, Federal Reserve Chairman Jerome Powell adopted a cautious tone on policy-easing while testifying about the Semiannual Monetary Policy Report before the House Financial Services Committee. Powell reiterated that they are not in a rush to cut interest rates, adding that they need more time to confirm that inflation pressures caused by tariffs will remain contained. These comments supported the USD and further weighed on XAU/USD.
The USD came under selling pressure late Wednesday as the Fed’s independence came under question again, helping XAU/USD erase a small portion of its weekly losses.
The Wall Street Journal (WSJ) reported that US President Donald Trump is considering naming his candidate for the next Chairman of the Fed early, in a bid to undermine Fed Chair Jerome Powell. Citing people familiar with the matter, the WSJ said he could announce Powell’s possible replacement by September or October. Trump is reportedly evaluating the commitment to cut rates from Kevin Hassett, Director of the National Economic Council, and Treasury Secretary Scott Bessent, who are reportedly among the names under consideration. The USD Index slumped to its weakest level since March 2022 on Thursday following this development. Nevertheless, Gold failed to gather bullish momentum as the market mood remained upbeat.
Following the meager recovery attempt, Gold continued to stretch lower early Friday and touched its weakest level in nearly a month. The final data releases of the week from the US showed that annual inflation, as measured by the change in the Personal Consumption Expenditures (PCE) Price Index, rose to 2.3% in May from 2.2% in April (revised from 2.1%). The core PCE Price Index, which excludes volatile food and energy prices, rose 2.7% in the same period. Although the USD struggled to find demand following these figures, the risk-positive market environment didn’t allow XAU/USD to shake off the bearish pressure.
Gold investors await key data releases from the US
Fed Chairman Powell will participate in a policy panel on Tuesday with other central bankers at the European Central Bank (ECB) Forum on Central Banking in Sintra, Portugal. Later in the day, the US economic calendar will feature the Institute for Supply Management’s Manufacturing PMI data for June and JOLTS Job Openings data for May.
The CME Group FedWatch Tool shows that markets are currently pricing in about a 20% probability of a Fed rate cut in July. This market positioning suggests that the USD could stage a rebound with the immediate reaction in case Powell hints again that they are likely to wait until September before taking action.
On Wednesday, Automatic Data Processing (ADP) will release employment figures for the private sector. Because financial markets will be closed in observance of the July 4 holiday on Friday, the US Bureau of Labor Statistics will publish the June employment report on Thursday. Hence, investors could refrain from taking large positions based on the ADP data.
During his congressional testimony, Powell noted that the labor market was strong and was near full employment. However, he also acknowledged that a weakening labor market could cause them to ease the policy sooner.
Nonfarm Payrolls
A significant negative surprise, with a Nonfarm Payrolls reading below 100,000, could revive expectations for a rate cut next month. In this scenario, the USD could come under renewed bearish pressure and open the door for a decisive rebound in Gold. On the flip side, a print above 150,000 would suggest that the labor market is healthy enough for the Fed to take its time to assess inflation dynamics. In this scenario, Gold could turn south in the second half of the week.
