Gold price sticks to modest gains near weekly top, bulls seem non-committed ahead of US NFP

04 Oct 2024, 02:48 by Haresh Menghani · FXStreet

Gold price gains some positive traction amid a modest USD pullback from a one-month top.
Geopolitical risk benefits the safe-haven XAU/USD and further contributes to the uptick.
Diminishing odds for an aggressive Fed easing cap the metal ahead of the US NFP report.

Gold price (XAU/USD) struggles to capitalize on its modest intraday uptick and remains below the weekly top through the early part of the European session on Friday. Diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed) turn out to be a key factor acting as a headwind for the non-yielding yellow metal. Traders also seem reluctant and prefer to wait for the release of the closely-watched US monthly employment details before positioning for the next leg of a directional move.

Heading into the key data risk, some repositioning trade leads to a modest US Dollar (USD) pullback from a one-month top touched on Thursday and lends some support to the Gold price. Apart from this, persistent risks stemming from the ongoing conflicts in the Middle East turn out to be another factor benefiting the safe-haven precious metal. This, in turn, suggests that the path of least resistance for the XAU/USD is to the upside, which remains within the striking distance of the all-time peak touched last week.

Daily Digest Market Movers: Gold price draws haven flows amid geopolitical risks; focus remains on US NFP

The US Department of Labor (DOL) reported on Thursday that the number of Americans filing applications for unemployment benefits increased marginally to 225K during the week ended September 28 as compared to the 218K previous.
This comes on top of a larger-than-anticipated increase in the US private-sector employment in September and an unexpected rise in the number of available jobs in August, providing evidence of a stable and still resilient labor market.
Separately, the Institute for Supply Management (ISM) said that its Non-Manufacturing PMI rose to 54.9 in September, or the highest level since February 2023, suggesting that the economy remained on a solid footing in the third quarter.
This further tempers market expectations for another oversized interest rate cut by the Federal Reserve and lifts the US Dollar to a one-month top, which, in turn, is seen as a key factor acting as a headwind for the non-yielding Gold price.
Hezbollah launched approximately 230 projectiles from Lebanon into Israeli territory on Thursday and Israel launched strikes early on Friday targeting Hezbollah's intelligence headquarters in the southern suburbs of Lebanese capital Beirut.
Meanwhile, Israel will reportedly carry out a very significant retaliation within days to Iran's onslaught of nearly 200 ballistic missiles on Tuesday night, raising the risk of a full-blown war and lending support to the XAU/USD.
Traders now look forward to the US Nonfarm Payrolls (NFP) report, which is expected to show that the economy added 140K jobs in September slightly lower than the 142K previous, and the Unemployment Rate held steady at 4.2%.
This, along with Average Hourly Earnings, will be looked upon for cues about the size of the Fed rate cut in November, which will play a key role in driving the USD demand and provide a fresh directional impetus to the commodity.

Technical Outlook: Gold price setup supports prospects for further gains, the $2,625 area holds the key for bulls

From a technical perspective, the range-bound price action might still be categorized as a bullish consolidation phase against the backdrop of the recent strong runup to the record peak. Moreover, oscillators on the daily chart are holding comfortably in positive territory and have also eased from the overbought zone. This, in turn, favors bullish traders and suggests that the path of least resistance for the Gold price remains to the upside. In the meantime, the $2,672-$2,673 area could offer immediate resistance ahead of the $2,685-2,686 zone, or the all-time high touched last week. This is closely followed by the $2,700 mark, which if conquered will set the stage for an extension of a well-established multi-month-old uptrend.

On the flip side, the weekly low, around the $2,625-2,624 area, which coincides with a short-term ascending channel resistance breakpoint, might continue to offer support and act as a key pivotal point. A convincing break below might prompt aggressive technical selling and drag the Gold price below the $2,600 mark, towards the next relevant support near the $2,560 zone. The corrective decline could extend further towards the $2,535-2,530 support before the XAU/USD eventually drops to the $2,500 psychological mark.

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

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