On Monday, spot gold briefly climbed to US$4,202, its highest level since 22 June, before quickly giving back gains as the US dollar strengthened during the session. Behind this rally and subsequent pullback lies the complex interplay between the US dollar, employment data, and monetary policy expectations. With the release of the Federal Reserve's June meeting minutes scheduled for Wednesday, another major catalyst is looming over the gold market.

Monday's rally was not without reason. Last Thursday's US June Nonfarm Payrolls (NFP) report showed that the economy added only 57,000 jobs, well below market expectations of 113,000, while payroll figures for April and May were revised down by a combined 74,000. The sharp slowdown in job growth, together with dovish remarks from Federal Reserve Chair Waller at the ECB Forum, quickly reduced expectations of further Fed rate hikes, prompting a rebound in gold prices. Gold gained more than 2% over the previous week, ending a four-week losing streak.

However, the June employment report is undoubtedly a double-edged sword for gold.

On one hand, the significant slowdown in job growth has eased concerns that the Fed needs to raise rates again in the near term. Markets now price a 77% probability that the Fed will keep rates unchanged in July, with only a 23% chance of a rate hike. By September, the probability of another hike stands at around 56%. Softer rate hike expectations reduce the opportunity cost of holding non-yielding assets such as gold, providing support for prices.

On the other hand, the unemployment rate fell from 4.3% in May to 4.2%, largely because of a contraction in labour supply rather than stronger hiring. This gives hawkish Fed officials additional justification to maintain a restrictive policy stance. With the labour market stabilising while inflation continues to accelerate, elevated inflation has become the primary risk facing the US economy. As a result, weaker employment data does not necessarily imply a dovish shift in monetary policy. Until inflation shows clear signs of easing, any softness in employment is more likely to be interpreted as evidence of slowing economic growth rather than confirmation that the rate hiking cycle has ended. This contradiction is precisely why the gold market remains trapped in a range-bound environment.

Investors are now firmly focused on the FOMC meeting minutes from the 16–17 June policy meeting, due to be released on Wednesday. The meeting marked the first policy meeting chaired by the new Fed Chair Waller, making it a significant turning point for future monetary policy.

Market Analysis:

Gold continues to trade sideways on the 4-hour chart, with both the MACD lines and histogram expanding around the zero line. If the meeting minutes show that most policymakers support Chair Waller's move towards a less guidance-driven policy approach, uncertainty surrounding future interest rates is likely to increase, which would not be favourable for gold. Conversely, if the minutes reveal significant divisions among policymakers regarding the economic outlook or show reluctance towards aggressive rate hikes, concerns over further tightening could ease. This would likely push short-term US Treasury yields and the US Dollar Index lower, providing support for gold.