Gold prices are revealing a positive trend for the third consecutive day. However, this upward movement lacks significant follow-through. The prevailing market sentiment is influenced by anticipated adjustments in the Federal Reserve’s policy stance, acting as a favorable variable. Simultaneously, a resurgence in US bond yields is driving demand for the US Dollar, limiting the precious metal’s ascent. Traders, exercising caution, are holding back definitive investments, awaiting the release of the pivotal US Nonfarm Payrolls (NFP) report.
Gold Prices Persist in Consolidation
Gold prices (XAU/USD) are grappling with a persistent challenge as they fluctuate within a firmly established range during the Asian session. Despite this, the precious metal maintains a favorable position for the third successive day. The driving force behind this trend is the belief that interest rates in the United States (US) have peaked. However, bullish sentiment is tempered as investors await the release of the eagerly anticipated US Nonfarm Payrolls (NFP), seeking clues about the robustness of the labor market. A weaker labor market could increase the chances of a Federal Reserve (Fed) rate cut as early as March 2024, thus boosting the non-yielding yellow metal.
Eyes on US Nonfarm Payrolls Report
Traders eagerly await the release of the closely-monitored US monthly employment details for additional insights into labor market conditions and potential shifts in Fed policy timing. Forecasts anticipate the NFP print to reveal the addition of 180,000 jobs in November, up from 150,000 in the previous month, with the unemployment rate holding steady at 3.9%. Attention will also focus on Average Hourly Earnings data, projected to increase by 0.3% in the reported month and by 4% over the past 12 months through November. Any unfavorable surprises could prompt the Fed to adopt a less hawkish stance in the coming months, benefiting the commodity amid concerns about a global economic downturn and geopolitical tensions.
US Treasury Bond Yields and Gold Prices
In anticipation of the crucial data release, there is a discernible resurgence in US Treasury bond yields, leading to increased demand for the US Dollar (USD). Consequently, traders are hesitant to make assertive bullish bets on the USD-denominated gold price. Additionally, the robust overnight surge in US equity markets poses an added challenge for the safe-haven XAU/USD. Despite these challenges, a significant corrective decline remains elusive, thanks to dovish Fed expectations, a gloomy global economic outlook (particularly in China), and persistent geopolitical tensions. The prevailing belief that the Federal Reserve has concluded its policy-tightening efforts and might initiate rate cuts in 2024 continues to provide underpinning for gold prices.
Dovish Fed Expectations Reinforced by Recent Releases
Recent data releases, such as the US JOLTS Job Openings and the ADP report earlier in the week, indicate a cooling in the US labor market, reinforcing dovish Fed expectations. Traders currently estimate a greater than 60% chance of a 25 basis points Fed rate cut in the March 2024 policy meeting, according to the CME Group’s FedWatch Tool. The yield on the benchmark 10-year US government bond moving away from a three-month low lends support to the US Dollar, curbing gains for the non-yielding metal. Additionally, the absence of further escalation in Middle East tensions and the recent risk-on rally in US equity markets contribute to limiting the safe-haven XAU/USD.
Technical Analysis: Charting the Course for Gold Prices
The consolidation of gold prices over the past four days reveals a familiar trading pattern. From a technical standpoint, the recent price action, confined within a trading band, signifies the formation of a rectangle on short-term charts. This suggests a phase of consolidation preceding the next directional move. Notably, the lower boundary of this trading band aligns with the 100-period Simple Moving Average (SMA), situated around the $2,015-2,014 range. This serves as a pivotal point before the psychologically significant $2,000 mark. A convincing breach below the latter could propel gold prices towards the $1,977-1,976 horizontal support, with the potential for further decline towards the crucial 200-day SMA near the $1,950 range.
On the flip side, the $2,038-2,040 region, representing the upper limit of the established trading range, may persist as an immediate obstacle. A sustained breakthrough would be perceived as a fresh trigger for bullish traders, especially with the occurrence of a golden cross, marked by the 50-day Simple Moving Average surpassing the 200-day SMA. Furthermore, indicators on the daily chart comfortably maintain positive territory and are notably distant from the overbought zone. This suggests that the path of least resistance for gold prices leans towards the upside. Meanwhile, any subsequent upward movement may encounter resistance near the $2,045 level, followed by the $2,071-2,072 area and the psychologically significant $2,100 mark.
Conclusion
In the intricate dance of gold prices, the current landscape reflects a delicate balance influenced by Federal Reserve policies, market speculations, and global economic indicators. As we await the unveiling of the US Nonfarm Payrolls report, the precious metal remains resilient, navigating through challenges and consolidating within established ranges. Technical analysis provides insights into potential price movements, emphasizing key support and resistance levels.
