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Gold heads for weekly loss, drops over 2% on strong US jobs report, China data

Gold prices are headed for another weekly loss after a stronger-than-expected US jobs report doused expectations for US interest rate cuts this year, adding to the bearish sentiment driven by data showing that top consumer China held off on bullion purchases in May. The yellow metal has been declining for the last three weeks over diminished rate cut expectations by the US central bank.

Spot gold dipped 2.7 per cent to $2,312.20 per ounce. US gold futures dropped 2.5 per cent to $2,330.10. Caught in the slipstream, silver shed 5.8 per cent to $29.50 per ounce, platinum fell over three per cent at $972.10, and palladium lost 2.8 per cent to $904.25. Coming to domestic prices, gold futures last traded 0.2 per cent lower at 71,341 per 10 grams on the multi-commodity exchange (MCX).

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Gold prices extend losses: What’s hurting the yellow metal?

-Analysts said that they will see today whether gold has the stomach to absorb the one-two punch of a strong employment report AND a pause in Chinese buying. The Labor Department’s report showed Nonfarm Payrolls (NFP) rose by 272,000 jobs in May, against expectations of an increase of 185,000.

-The data also drove a rally in the dollar, making bullion more expensive for overseas buyers. Traders lowered their bets to price in 38 basis points (bps) of cuts by end-December, from 48 bps before the NFP data, with the first cut more likely seen coming in November instead of September.

-The gold market is seeing a bit of liquidation, along with other metals since the data shows the US economy is quite robust and the US Fed may delay that first cut, according to analysts. Higher rates increase the opportunity cost of holding non-yielding bullion.

The jobs report also added to the bearish sentiment seemingly driven by data showing top consumer China held off gold purchases in May after 18 consecutive months of buying. Analysts at TD Securities noted that while the China news notably hit the yellow metal, “the pause in purchasing could just be a hint of a return to a more price sensitive operation given the run up in prices.”

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Where are gold prices headed?

‘’Gold prices experienced sharp volatility this week, fluctuating between 71,300 and 73,400 in MCX, driven by major data events. Earlier in the week, lower nonfarm employment data supported Gold, increasing expectations for a rate cut by the Fed,” said Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities.

‘’However, Friday’s significant data releases from Nonfarm Payroll and Unemployment will provide clearer indications for future trends. The likelihood of a rate cut in September will heavily influence Gold’s rally. Currently, Gold has strong support at 71,000-70,000, with resistance at 73,500,” added Trivedi.

Technical View: Gold has support at $2351-2335 and resistance at $2391-2405. Silver has support at $30.82-30.67 and resistance at $31.32-31.50. In INR, gold has support at 72,880-72,650 and resistance at 73,340-73,550. Silver has support at 93,250-92,680 and resistance at 94,470-95,150, according to Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

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Read More:Gold heads for weekly loss, drops over 2% on strong US jobs report, China data