On Monday (May 6), spot gold bottomed out and rebounded, and intraday trading was around $2,320.

Since the release of US non-farm payrolls data for April and Federal Reserve Chairman Powell's monetary policy press conference, spot gold has fallen by about 6.3% from its all-time high of 2,431 US dollars on April 12, and the price of gold hit a low of 2,277 US dollars last Friday (May 3).

The risk of stagflation still “exists”

The market doesn't seem to pay much attention to the US ISM service sector PMI data, which is considered the leading economic indicator for measuring the state of the US economy. The non-farm payrolls data for April was weaker than expected, adding only 175,000 jobs, lower than the forecast of 243,000 jobs, and lower than the March 315,000 jobs. This indicates that the US job market is still expanding rapidly, which reduces the possibility of the Federal Reserve raising interest rates. The US economy is in a “golden-haired girl.”

On the other hand, the service sector, which contributed nearly two-thirds of the US economic growth, showed signs of a sharp slowdown. The latest data from the US ISM service sector PMI showed that it contracted to 49.4 in April, the first contraction since December 2022, below the 52.0 consensus.

Furthermore, the ISM service price index (seen as a measure of the commercial cost of the US service sector) rose from 53.4 in March to 59.2 in April, higher than the expected 55.

Overall, we saw a similar trend in the ISM manufacturing PMI and its manufacturing price sub-indicators for April, although growing faster compared to service prices.

These latest data points suggest that the potential stagflation environment is similar to the 1970s, when the Federal Reserve was restrained and unable to develop a loose monetary policy, which in turn may support the continued main bullish trend of gold since September 2022.

Positive technical elements have re-emerged

(Spot gold daily chart source: eHuitong)

The daily relative strength index momentum indicator for gold rebounded above the key parallel upward support level around 50, which indicates that the medium term momentum will recover, while the price trend remains above the 50-day moving average, which indicates that the medium term upward phase since February 14, 2024 is still intact.

Second, the short-term corrective pullback from an all-time high of $2,431 on April 12, 2024 has changed to a potential bullish “falling wedge” configuration since April 26, which means that the short-term downward momentum inherent in the two-week corrective pullback has begun to ease.

Focusing on $2,260 (the upper limit of the medium-term key support level), the first short-term obstacle facing the bulls may be the immediate resistance zone of $2,350 - $2365. If the price continues to rise, the next immediate resistance levels will be at $2,420 (the current historical high zone) and $2,450.

However, failure to maintain $2,260 may see an extension of the short-term correction decline to reveal the next support levels of $2,235 and $2,210 (medium term key support and the lower limit of the 50-day moving average).

At 19:11 Beijing time, spot gold was reported at 2321.35 US dollars/ounce, an increase of 0.85%.