Market update: Gold’s path hinges on US jobs report

XAU highly sensitive to US news

In early afternoon trading yesterday, Monday 28 August 2023, XAU/USD was up about 0.50% to $1,924, consolidating above its 200-day simple moving average and steadily approaching technical resistance at $1,925-$1,930, an area that holds the potential to hinder the continuation of the nascent recovery.

Looking ahead, the precious metal will be very sensitive to incoming US economic reports, given the pledge by the Federal Reserve Bank (Fed) to proceed with caution after having already delivered 525 basis points of cumulative tightening since March 2022 in its most aggressive hiking cycle in four decades.

The data-dependent approach is part of a strategy to retain maximum optionality in case the central bank needs to apply additional monetary policy firming at upcoming meetings to contain elevated inflation, which reaccelerated early in the summer and remains well above the 2.0% target.

The August US nonfarm payrolls (NFP) report due out on Friday, is likely to provide valuable information on the outlook and guide the Federal Open Market Committee's (FOMC’s) decision-making process, so traders should follow the release closely.

In terms of expectations, US employers are forecast to have added 170,000 workers this month after hiring 187,000 people in July. The jobless rate, for its part, is seen holding steady at 3.5%, signalling persistent tightness in the labour market.

Upcoming US employment report

Nonfarm payroll data pivotal for gold, USD prices

The strength or weakness of the NFP survey will be pivotal for the US dollar and gold prices, significantly shaping their near-term trajectory by influencing the Fed’s tightening roadmap. That said, there are two scenarios worth highlighting:

Scenario 1: Strong job gains and elevated average hourly earnings

Employment gains above 200,000 and hot average hourly earnings will reinforce upside inflation risks, increasing the likelihood of a quarter-point hike at the September FOMC meeting. This scenario should bias Treasury yields higher, boosting the US dollar and weighing on gold prices.

Scenario 2: Soft employment growth and modest rise in wages

Job figures below 150,000 and subdued growth in wages will raise concerns about the health of the economy, leading traders to price out further monetary tightening. In these circumstances, nominal yields could fall, dragging down the US dollar. These market dynamics would stand to benefit precious metals.

Gold price technical analysis

Earlier this month, gold fell sharply, undermined by the US dollar upward impetus and soaring real yields. XAU/USD, however, has begun to recover in recent days after bouncing off Fibonacci support at $1,895, with the metal reclaiming the 200-day simple moving average last week.

While gold’s near-term bias remains somewhat bearish, the outlook could become more benign if prices manage to clear a key barrier, stretching from $1,925 to $1,930 soon. If this scenario plays out, bullish momentum could gather pace, setting the stage for a rally toward trendline resistance at $1,950.

On the flip side, if the nascent recovery stalls and sellers seize on the opportunity to regain control of the market, initial support appears at $1,910, followed by $1,895. The bears will have a hard time taking out the $1,895 floor, given its technical importance, but in the event of a breakdown, a pullback towards $1,855 should not be ruled out.

Gold price chart

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