- Gold rises above $2,500, hitting a peak of $2,523 ahead of profit-taking ahead of key US economic data.
- Traders price in more than 104 bps of Fed easing, expecting rate cuts to maintain labor market stability.
- Falling US Treasury yields and a weaker US dollar support further gains in gold prices.
Gold prices rebounded sharply during the North American session, above the $2,500 figure on Thursday, although they remain below their daily peak of $2,523 as traders took profits ahead of the top-line data from the United States (US). At the time of writing, XAU/USD is trading at $2,516, gaining over 0.80%.
In the early hours, US employment data showed mixed readings, although it confirmed that the labour market is cooling, fuelling speculation of a 50 basis point (bps) interest rate cut by the Federal Reserve (Fed) in two weeks. On the other hand, the economy remains resilient as business activity in the services segment improved against projections of a slowdown.
However, gold traders lifted the yellow metal above $2,500 as they priced in more than 104 bps of Fed easing, according to the Chicago Board of Trade (CBOT) December 2024 federal funds rate futures contract.
What is almost certain is that the Fed could lower borrowing costs, according to San Francisco Fed President Mary Daly. She said the Fed needs to cut rates to keep the job market healthy.
U.S. Treasury yields fell after the data, with the 10-year Treasury note down three basis points to 3.727%, weakening the dollar. The U.S. Dollar Index (DXY), a measure of the dollar’s value against six other currencies, fell more than 0.21% to 101.05.
Meanwhile, gold traders are preparing for the release of the Non-Farm Payrolls (NFP) report for August.
Market Movers: Gold Price Soars Ahead of US NFP Data
- ADP’s National Employment Change figures showed private businesses hired fewer people than expected, adding just 99,000 in August, well below the 145,000 expected and the downwardly revised figures for July.
- Initial claims for unemployment benefits for the week ending August 31 came in at 227,000, below the 230,000 projected and 232,000 previously.
- The ISM Services Purchasing Managers’ Index (PMI), a measure of business activity, improved. The index came in at 51.5 versus 51.4 in July and above the consensus forecast of 51.1.
- August NFP figures are expected to rise from 114,000 to 163,000, while the unemployment rate could fall, according to consensus, from 4.3% to 4.2%.
Technical Outlook: Gold Price Buyers Reclaim $2,500
Gold prices had rallied to fresh two-week highs above $2,500 ahead of the release of the NFP report. The price action shows that buyers are gaining momentum, as evidenced by the Relative Strength Index (RSI), pointing higher into bullish territory.
That said, the path of least resistance for XAU/USD is tilted to the upside, and it could challenge the yearly (YTD) high at $2,531. If overcome, the next stop would be the psychological level of $2,550, followed by the $2,600 mark.
Conversely, if XAU/USD drops below $2,500, the next support would be the August 22 low at $2,470. Once cleared, the next demand zone would be the confluence of the April 12 high, which turned into support, and the 50-day simple moving average (SMA) at $2,435-$2,431.
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.
