After the US Labor Department disclosed that the US economy added more jobs than predicted, gold fell from three-week highs above $1874 to the confluence of the 20 and 200-day moving averages (DMAs) in the $1840s zone.

According to a Labour Department report released Friday, nonfarm payrolls increased by 390,000 last month, following a revised 436,000 increase in April. The unemployment rate remained unchanged at 3.6 percent, while the labour force participation rate increased little. Financial analysts’ discussion about the US labour market, however, continues to bolster the assumption that the US Federal Reserve would tighten aggressively if the green light is given. The dismal private payrolls report suggests the economy is weakening, leading to speculation that the Federal Reserve might not need to tighten policy as aggressively later this year.

Meanwhile, Cleveland Fed Loretta Mester (2022 FED voter) acknowledged that the FED’s only issue is inflation and the chances of a recession have increased. She also stated that she supports 50 basis point rises in June and July, while not ruling out a similar increase in September, but that it would be data-dependent. She stated that a 25-bps hike in September would be appropriate if she sees persuasive evidence of lower inflation.

The US Dollar Index, which measures the value of the dollar against a basket of currencies, is up 0.42 percent to 102.187, creating a headwind for gold prices. This, together with the US 10-year Treasury rate approaching the 3% mark (now 2.96%), will put the non-yielding metal on the defensive. The US Federal Reserve board members will begin their blackout period on preparations for the June meeting in the next week. The May inflation report, on the other hand, would keep investors’ attention on the US economic calendar.

Furthermore, gold remains in high demand due to its safe-haven status, as the war in Ukraine shows no signs of ending. Due to the war and the Western sanctions enacted in response to it, the global economy is slowing, which will continue to lure investors to the precious metal. I expect gold to find a floor at around $1,800, with upside potential of $1,950