- Gold price attracts some buying for the second straight day, though the upside remains capped.
- A positive risk tone caps gains for the metal amid the uncertainty over the Fed’s rate-hike path.
- Traders now look to the crucial US Nonfarm Payrolls (NFP) report for some meaningful impetus.
Gold price (XAU/USD) trades with a mild positive bias for the second successive day on Friday, albeit lacking bullish conviction and remains below the $2,000 psychological mark through the Asian session. Investors now seem to have moved to the sidelines and look forward to the closely-watched monthly employment details from the United States (US) for cues about the Federal Reserve’s rate-hike path before placing fresh directional bets.
Heading into the key data risk, bets that the Fed is nearing the end of its policy-tightening campaign and could start cutting rates in June 2024 keep the US Dollar (USD) bulls on the defensive. This, along with concerns about a slowdown in the Chinese economy and unrest in the Middle East, acts as a tailwind for the safe-haven Gold price, though the risk-on environment – as depicted by a generally positive tone around the equity markets – caps gains.
Daily Digest Market Movers: Gold price struggles to gain any meaningful traction ahead of the US jobs data
- Gold price oscillates in a familiar trading band held over the past three days, awaiting a fresh catalyst before the next leg of a directional move.
- Bets that the Federal Reserve will not hike rates any further led to the recent fall in the US Treasury bond yields and undermined the US Dollar.
- The US economic resilience and still sticky inflation keep the door open for one more Fed rate hike move either in December 2023 or January 2024.
- Fed Chair Jerome Powell noted that some slowing in the labor market will likely need to happen in order for inflation to continue its downward trajectory.
- Hence, the US monthly jobs data, or the NFP report, might influence the Fed’s next policy move and provide some meaningful impetus to the XAU/USD.
- The US economy likely added 180K jobs in October, down from the 336K in the previous month, and the jobless rate is seen holding steady at 3.8%.
- Any meaningful divergence from expected numbers is likely to infuse volatility in the financial markets and drive demand for the safe-haven metal.
- The Middle East conflict and China’s economic woes should continue to act as a tailwind for the commodity, despite a generally positive risk tone.
Technical Analysis: Gold price remains below the $2,000 psychological mark
From a technical perspective, nothing seems to have changed much for the Gold price and any subsequent move up is more likely to confront stiff resistance near the $2,000 mark. The next relevant hurdle is pegged near the $2,008-2,010 area, or the multi-month peak touched last Friday. Bulls need to wait for a sustained strength beyond the said barrier before positioning for a move towards the next relevant barrier near the $2,022 region.
On the flip side, the $1,980 region now seems to protect the immediate downside ahead of the weekly low, around the $1,970 level set on Wednesday. Some follow-through selling might expose the $1,964 intermediate support before the Gold price eventually drops to the $1,954-1,953 region.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the New Zealand Dollar.
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.