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Gold price oscillates within a range for several days ahead of the US NFP.

  • Gold price fails to gain significant traction and oscillates within a range on Friday.
  • Expectations that the Fed has ended its monetary policy tightening campaign act as a tailwind.
  • The rebound in US bond yields, the revival of demand for the Dollar and the positive tone of risk appetite limit gains.
  • Traders also seem reluctant to open directional positions ahead of the crucial US NFP report.

The price of Gold (XAU/USD) continues to consolidate its sideways trend for the fourth consecutive day and remains within a limited range during the early hours of the European session on Friday. Traders are reluctant to open aggressive positions and prefer to stay on the sidelines awaiting the monthly US employment data, popularly known as the non-farm payrolls (NFP) report, which will be published today at the start of the American session. Any sign of weakness in the labor market will reaffirm the Federal Reserve’s (Fed) moderate expectations, which, in turn, should weigh on the Dollar and give a new boost to the yellow metal.

Ahead of key data, the Dollar is back in demand due to a fresh rally in US Treasury yields. This, along with a positive risk tone, turns out to be a key factor acting as a headwind for the price of Gold. That said, the increasingly firm expectations that the Fed will not raise interest rates again and could begin to relax its monetary policy in the first half of 2024. They continue to provide some support to the yellow metal, which does not generate returns. Furthermore, the worsening global economic outlook (especially in China) and geopolitical tensions should limit the decline of XAU/USD.

Daily Market Summary: Gold Price Lacks Firm Short-Term Direction Amid Mixed Signals Ahead of US NFP

  • The market’s conviction that the Federal Reserve has ended its monetary policy tightening campaign and could begin cutting rates in 2024 continues to act as a tailwind for the price of Gold.
  • US job openings data from JOLTS and the ADP private sector employment report released earlier this week pointed to a cooling of the US labor market and reaffirmed the Fed’s dovish expectations.
  • According to the CME Group’s FedWatch tool, traders currently value the possibility of a 25 basis point cut in Fed rates as early as the March 2024 monetary policy meeting at more than 60%.
  • The yield on the 10-year US public debt is moving away from three-month lows, which lends some support to the Dollar, limiting the gains of the yellow metal, without yield.
  • The absence of a new escalation of tensions in the Middle East and the recovery of the US stock markets from the previous day also contribute to limiting the XAU/USD.
  • Traders are now watching monthly US employment data for labor market conditions and when the Fed could begin to ease monetary policy.
  • NFP data is expected to show that the US economy added 180,000 jobs in November, up from 150,000 the previous month, and that the unemployment rate remained stable at 3.9%.
  • Attention will also focus on the Average Hourly Earnings data, which is expected to have increased 0.3% during the reported month and 4% year-over-year in November.
  • Any negative surprise could force the Fed to soften its hawkish tone in the coming months and benefit the yellow metal amid concerns about a global economic downturn and geopolitical tensions.

Technical Analysis: The price of Gold extends its consolidation, the bullish potential seems intact

From a technical point of view, the recent price movement within a limited range over the last four days constitutes the formation of a rectangle on short-term charts. This points to a consolidation phase before the next directional move. Meanwhile, the lower limit of that range now coincides with the 100-period SMA, currently around the $2,015-$2,014 area. This, in turn, should act as a key pivot point ahead of the $2,000 psychological level. A convincing break below this last level could drag the price of Gold towards the horizontal support of $1,977-$1,976. The corrective decline could extend further towards the important 200-day SMA, near the $1,950 area.

On the other hand, the $2,038-$2,040 area, which represents the upper end of the multi-day trading range, could continue to act as an immediate barrier. Sustained strength above this region will be seen as a new trigger for the bulls amid the emergence of a golden cross, with the 50-day simple moving average rising above the 200-day SMA. Furthermore, the daily chart oscillators remain comfortably in positive territory and are still far from the overbought zone. This, in turn, suggests that the path of least resistance for the price of Gold is upwards. Meanwhile, any further bullish move could face some resistance near the $2,045 level before the $2,071-$2,072 zone and the round $2,100 level.

Frequently asked questions about Gold

Why invest in Gold?

Gold has played a fundamental role in human history, as it has been widely used as a store of value and medium of exchange. Today, aside from its brilliance 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, since it does not depend on any specific issuer or government.

Who buys more Gold?

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 purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons 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 since records exist. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.

What correlation does Gold have with other assets?

Gold has an inverse correlation with the US Dollar and US Treasuries, 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.

What does the price of Gold depend on?

The price of Gold can move due to a wide range of factors. Geopolitical instability or fear 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, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.

Source: Fx Street

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