- Gold prices have stopped a retracement decline from near their all-time highs following the NFP release.
- Diminishing expectations of a significant interest rate cut by the Federal Reserve (Fed) are supporting the US dollar and acting as a headwind.
- Concerns about a US economic slowdown and geopolitical tensions are providing some support.
Gold prices (XAU/USD) rose in Monday's Asian session but lacked bullish conviction and are currently trading just below the psychological threshold of $2,500. Mixed US employment data reduced the likelihood of a significant 50 basis points interest rate cut by the Federal Reserve. This led to a gradual recovery in US Treasury yields and the US Dollar (USD) rebounding from over a week lows on Friday, acting as a headwind for low-yielding gold.
Meanwhile, disappointing US employment data has raised concerns about a slowdown in the world's largest economy. This, combined with the lack of progress in ceasefire negotiations between Israel and Hamas, has been a key factor in dampening investor appetite for risk assets and providing some support to safe-haven gold prices. Moreover, the recent range-bound movement should be a warning to aggressive traders before solidifying any short-term direction.
Daily Digest Market Trends: Gold prices attract safe havens as risk easing, US Treasury yields rise and US dollar market cap rises
- The Bureau of Labor Statistics (BLS) announced on Friday that nonfarm payrolls (NFP) rose 142,000 in August, beating expectations of 160,000 and down from the previous month's downwardly revised estimate of 89,000.
- Other details in the report showed the unemployment rate fell to 4.2% from 4.3% in July, while wage inflation, measured by the change in average hourly earnings, rose to 3.8% from 3.6% previously.
- According to CME Group's FedWatch tool, the market is pricing in about a 70% chance of a 25 basis point Fed cut later this month, with a 30% chance of a 50 basis point cut.
- The US dollar initially fell after the jobs report but quickly recovered and was up slightly in Asian markets on Monday, which is now seen as a headwind for gold prices.
- Meanwhile, mixed US employment data provided clear evidence of a sharp deterioration in the labor market, weighing on investor sentiment amid ongoing geopolitical tensions and providing support to safe-haven XAU/USD.
- China's gold holdings stood at 72.8 million troy ounces at the end of August, remaining stable for the fourth consecutive month, according to data released by the People's Bank of China (PBOC) on Sunday.
- Meanwhile, markets had little reaction to China's latest inflation data, which showed that consumer prices rose for the seventh consecutive month in August but producer price deflation persisted.
Technical Outlook: Gold prices need to break out of a multi-week trading range before the next directional move
From a technical perspective, gold prices have been fluctuating within a familiar range for the past three weeks or so. It has formed a rectangle on the short-term chart, indicating that traders are undecided about the next stage of the directional move. However, the price movement within the range could still be classified as a bullish consolidation phase on the back of a strong rise to all-time highs. Moreover, oscillators on the daily chart, although losing momentum, still remain in the positive territory. Therefore, any subsequent dip could still be viewed as a buying opportunity near the horizontal support at $2,471-2,470.
The latter marks the lower limit of the trading range and should be a key turning point. A credible break below this could trigger technical selling and expose the 50-day simple moving average (SMA) support currently anchored around $2,443-2,442. The downside trajectory could extend further towards the $2,400 fraction on the way to the 100-day SMA around $2,390-2,389. Conversely, any meaningful upside now seems to face strong resistance around $2,520 before a potential all-time high of $2,530-2,532. Any follow-through buying would be viewed as a new trigger for bullish traders and set the stage for a further upside move in the near term.
