- Gold price consolidates its recent gains to a one-month peak touched on Thursday.
- Traders opt to wait on the sidelines ahead of the release of the critical US jobs report.
- A combination of factors lends support to the XAU/USD and favours bullish traders
Gold price (XAU/USD) oscillates in a narrow trading band during the Asian session on Friday and consolidates its weekly gains to a one-month peak touched the previous day. A generally positive risk tone, bolstered by reports that an Israel-Hamas ceasefire was in the works, turns out to be a key factor acting as a headwind for the safe-haven precious metal. Furthermore, traders opt to wait on the sidelines ahead of the release of the US monthly employment details, which might provide more cues on the Federal Reserve’s (Fed) policy path and provide a fresh impetus to the non-yielding yellow metal.
Heading into the key data risk, renewed fears over the health of regional US banks, geopolitical tensions and China’s economic woes might continue to act as a tailwind for the safe-haven Gold price. That said, a modest bounce in the US Treasury bond yields helps the US Dollar (USD) to stall the previous day’s sharp retracement slide from the highest level since December 13. This might hold back traders from placing fresh bullish bets around the US Dollar-denominated commodity and cap the upside. Nevertheless, the XAU/USD seems poised to register gains for the first week in the previous three.
Daily Digest Market Movers: Gold price pauses the weekly uptrend as traders keenly await the US jobs report
- A series of unsubstantiated reports of a ceasefire between Israel and Hamas boosts investors’ confidence, capping the upside for the safe-haven Gold price on the last trading day of the week.
- Fed Chair Jerome Powell said on Wednesday that interest rates had peaked and would move lower in coming months, though tempered market expectations for any such a move in March.
- Reports suggest that Hamas received its first proposal for an extended pause to the fighting in Gaza in exchange for releasing the remaining hostages it holds, though has not yet responded to it.
- The Houthi rebels claimed that it struck a US merchant ship in the Red Sea, while the US launched new air strikes in Yemen, targeting ten drones reportedly being set up to launch.
- Concerns about the health of regional lenders in the US resurfaced on Thursday after New York Community Bancorp reported increased stress in its commercial real estate portfolio.
- China’s official Manufacturing PMI contracted for a fourth successive month in January, suggesting that the world’s second-largest economy is struggling to regain momentum.
- The yield on the benchmark 10-year US government bond remains below the 4% mark amid bets for a steep rate cut by the Federal Reserve in 2024 and undermines the US Dollar.
- The Labor Department reported that Initial Jobless Claims increased by 9,000, to 224K during the week ended January 27 from the previous week’s upwardly revised reading of 215 K.
- Separately, the Institute for Supply Management’s (ISM) Manufacturing PMI improved from 47.4 to 49.1 in January, while the Prices Paid Index climbed to 52.9 from 45.2 in December.
- The XAU/USD seems poised to snap a two-week losing streak as investors now look to the US jobs data for cues about the Fed’s policy path and some meaningful trading opportunities.
- The popularly known NFP report is expected to show that the US economy added 180K jobs in January, down from the 216K previous, and the jobless rate edged higher to 3.8% from 3.7%.
Technical Analysis: Gold price bulls have the upper hand while above the $2,040-2,042 resistance breakpoint
From a technical perspective, bulls might now wait for some follow-through buying beyond the $2,065 area, or a one-month top touched on Thursday, before placing fresh bets. Given that oscillators on the daily chart have just started gaining positive traction, the Gold price could then accelerate the momentum towards the $2,078-2,079 region, or the YTD peak set in January. The subsequent move-up should allow the XAU/USD to aim back to reclaim the $2,100 mark and climb further towards the next relevant hurdle near the $2,020 area.
On the flip side, the $2,042-2,040 strong horizontal resistance breakpoint now seems to protect the immediate downside ahead of the 50-day Simple Moving Average (SMA), currently pegged near the $2,033-2,032 zone. A convincing break below the latter could drag the Gold price to the $2,012-2,010 area en route to the $2,000 psychological mark. Failure to defend the said support levels might shift the bias in favour of bearish traders and expose the 100-day SMA support near the $1,982 region, before the XAU/USD drops to the very important 200-day SMA, near the $1,965 area.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Japanese Yen.
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling 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 Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.