Gold lacks firm near-term direction, remains stuck in a range ahead of US NFP
- Gold price struggles to gain any meaningful traction amid mixed fundamental cues.
- The Fed’s less hawkish outlook drags the USD to a multi-week low and lends support.
- Bets for a delayed Fed rate cut and a positive risk tone cap gains ahead of the US NFP.
Gold price (XAU/USD) remains on the defensive during the Asian session on Friday, albeit manages to hold its neck above a nearly one-month low touched earlier this week. Traders opt to wait on the sidelines ahead of the release of the closely watched US monthly jobs data, popularly known as the Nonfarm Payrolls (NFP) report, for cues about the Federal Reserve's (Fed) rate-cut path and before placing fresh directional bets. Heading into the key data risk, a combination of diverging forces fails to provide any meaningful impetus to the precious metal, which is seen extending its consolidative price move in a multi-day-old trading range.
Despite still-sticky inflation in the US, Fed Chair Jerome Powell ruled out the possibility of any further interest rate hikes. This, in turn, drags the US Dollar (USD) to a three-week low and acts as a tailwind for the non-yielding Gold price. The Fed, however, indicated that it is in no hurry to cut rates in the near term. Apart from this, the prevalent risk-on environment – as depicted by a generally positive tone around the equity markets – holds back traders from placing fresh bullish bets around the safe-haven XAU/USD. Hence, a sustained break through a short-term trading range is needed to determine the near-term trajectory for the metal.
Daily Digest Market Movers: Gold price struggles to gain traction, traders await cues on Fed’s rate-cut path
- Expectations that the Federal Reserve will keep interest rates higher for longer, along with the upbeat market mood, turn out to be key factors undermining demand for the safe haven Gold price.
- The Fed signaled on Wednesday that the next move will be to lower the policy rate, though it was in no hurry to begin cutting borrowing costs as the disinflationary process has slowed in recent months.
- The Fed's less hawkish outlook led to the broad-based US Dollar weakness and helps limit the downside for the XAU/USD, warranting some caution before positioning for any meaningful downfall.
- Traders might also prefer to wait for the release of the closely watched US monthly employment details, or the NFP report, which is expected to show that the economy added 243K new jobs in April.
- Meanwhile, the Unemployment Rate is anticipated to remain steady at 3.8% during the reported month, while Average Hourly Earnings probably eased to the 4.0% YoY rate from 4.1% in March.
- The crucial jobs data might influence market expectations about the Fed's future policy decisions, which, in turn, will drive the USD and provide some meaningful impetus to the non-yielding metal.
Technical Analysis: Gold price consolidates in current-week range
From a technical perspective, the range-bound price action witnessed since the beginning of the current week constitutes the formation of a rectangle on short-term charts and points to a consolidation phase. Moreover, neutral oscillators on the daily chart warrant some caution for aggressive traders and confirm the near-term trajectory for the Gold price. Hence, any further weakness below the $2,300 mark might continue to find decent support near the $2,285-2,280 region, which if broken decisively should pave the way for deeper losses. The XAU/USD might then accelerate the fall towards the next relevant support near the $2,268-2,265 area en route to the $2,230-2,25 region and the $2,200 round figure.
On the flip side, the $2,326-2,328 region now seems to act as an immediate hurdle ahead of the $2,335 supply zone and the weekly top, around the $2,346-2,347 area. A sustained strength beyond will confirm a breakout through the short-term trading range and lift the Gold price to the $2,371-2,372 resistance. The momentum could extend further towards the $2,400 mark and the all-time peak, around the $2,431-2,432 area touched on April 12.
Gold FAQs
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.