- Gold price continues to receive support from the USD selling bias inspired by the dovish Fed.
- Concerns about a US economic recession are further supporting the safe-haven metal.
- Traders are cautious ahead of crucial US jobs data.
Gold (XAU/USD) price on Thursday approached the $2,524-$2,525 supply zone amid continued selling in the US Dollar (USD), driven by bets on a larger interest rate cut by the Federal Reserve (Fed) later this month. A mixed set of employment data released in the United States (US) this week suggested that the labor market was losing steam and raised concerns about the health of the economy. This, in turn, raised market expectations for the possibility of more aggressive monetary policy easing by the Fed, dragging the USD down from a two-week high hit on Tuesday and benefiting the underperforming yellow metal.
Meanwhile, renewed fears of a recession in the world’s largest economy dampened investors’ appetite for riskier assets. This, coupled with lingering geopolitical tensions, proved to be another factor that underpinned the safe-haven demand for gold price. However, XAU/USD remains below the all-time high reached in August as traders opt to wait for the release of the US monthly jobs data later on Friday. The report popularly known as the Non-Farm Payrolls (NFP) will be watched for clues on the Fed’s rate-cutting path, which will, in turn, provide a fresh directional impetus to the precious metal.
Daily Market Wrap: Gold price benefits from bets on a bigger interest rate cut by the Fed in September
- The ADP National Employment Report released Thursday showed that U.S. private-sector employment rose by 99,000 in August, marking the smallest increase since January 2021.
- The reading was well below the market expectation of 145,000 and was accompanied by a downward revision of the prior month’s figure to 111,000 from the original estimate of 122,000.
- That follows a report on Wednesday showing job openings fell to 7.673 million, or a three-and-a-half-year low, in July, and provided further evidence of a deteriorating labor market.
- The Institute for Supply Management (ISM) Services PMI rose to 51.5 from 51.4 in August, while the Prices Paid Index rose to 57.3 from 57 and the Employment Index declined to 50.2 from 51.1.
- Separately, the US Department of Labor (DoL) reported that Initial Claims for Unemployment Benefits fell more than anticipated, to 227K in the week ending August 31 from the previous weekly figure of 232K.
- San Francisco Fed President Mary Daly said the U.S. central bank must calibrate policy to the evolving economy and cut policy rates because inflation is falling and the economy is slowing.
- Chicago Fed President Austan Goolsbee said Friday that long-term trends in the labor market and inflation data warrant a policy of cutting interest rates soon and then steadily over the next year.
- According to the CME Group’s FedWatch tool, markets are pricing in a 40% chance that the Fed will cut borrowing costs by 50 basis points at its Sept. 17-18 policy meeting.
- Subdued expectations, meanwhile, are keeping US Treasury yields depressed and US Dollar bulls on the defensive, which, in turn, should act as a tailwind for the non-yielding gold price.
- Market attention now turns to the crucial US Non-Farm Payrolls (NFP) report, which is expected to show that the economy added 160K jobs in August and the unemployment rate fell to 4.2%.
Technical Analysis: Gold price could accelerate positive move once $2,524-$2,525 barrier is decisively breached
From a technical perspective, the push beyond the immediate barrier of $2,524-$2,525 will be seen as a fresh trigger for bullish traders. Moreover, the oscillators on the daily chart remain in positive territory and are still far from being in the overbought zone. This, in turn, suggests that the path of least resistance for the gold price is to the upside. Some continued buying beyond the all-time high, around the $2,531-$2,532 area reached on August 20, will reaffirm the constructive outlook and pave the way for a further appreciating move.
On the other hand, the psychological mark of $2,500 now seems to protect the immediate downside below which gold price could slide back to the horizontal support of $2,471-$2,470. A convincing break below the latter will set the stage for deeper losses towards the 50-day Simple Moving Average (SMA), currently situated near the $2,440 region, en route towards the $2,400 mark and the 100-day SMA, around the $2,388 zone.
Gold FAQs
Gold has played a pivotal role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from its luster and use for jewelry, the precious metal is considered a safe haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy gold to improve the perception of the strength of the economy and the currency. High gold reserves can be a source of confidence in a country’s solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase on record. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasury bonds, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing 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 the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
Gold prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, Gold prices tend to rise when interest rates fall, while rising money prices often weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep Gold prices in check, while a weaker Dollar is likely to push Gold prices higher.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
