Gold Price Forecast: XAU/USD awaits US NFP for cues about Fed's interest rate path

• Gold price remains confined in a narrow trading band as traders keenly await the US NFP report.
• Reduced bets for aggressive Fed easing boost the US bond yields and the USD, capping the metal.
• The cautious market mood should limit losses for the safe-haven XAU/USD ahead of the key data.

Gold price (XAU/USD) continues with its struggle to gain any meaningful traction and extends its sideways consolidative price moves, below the $2,050 level for the second successive day on Friday. Traders opt to wait on the sidelines and brace for the key US monthly Nonfarm Payrolls (NFP) data for cues about the Federal Reserve's (Fed) interest rate path, which, in turn, should provide a fresh directional impetus to the non-yielding yellow metal. The closely watched monthly jobs report is expected to show that the economy added 170K new jobs in December as against 199K in the previous month. Meanwhile, the jobless rate is anticipated to edge higher to 3.8% from 3.7%, while Average Hourly Earnings growth is seen easing to a 3.9% YoY rate from 4.0% in November.

Robust job growth will reinforce a still resilient US labor market and force investors to continue scaling back expectations for a more aggressive policy easing by the Fed. This should allow the US Treasury bond yields and the Greenback to capitalize on the recent bounce from a multi-month low, which would be a bearish outcome for the Gold price. In contrast, any disappointment will reaffirm market bets that the Fed will cut interest rates by 25 basis points (bps) in March. This would exert pressure on the US bond yields and the USD, creating a favourable scenario for the precious metal to resume its recent move up from the vicinity of the 50-day Simple Moving Average (SMA) support tested on December 13. Nevertheless, the crucial data will infuse volatility in the markets.

Heading into the key central bank event risk, the uncertainty over the timing of when the US central bank will start cutting interest rates remains supportive of elevated US bond yields. In fact, the yield on the benchmark 10-year US government bond holds above the 4.0% threshold and assists the USD to flirt with a near three-week high touched on Wednesday. This is acting as a headwind for the Gold price, though the cautious market mood should help limit losses. Concerns about a slow economic recovery in China, along with geopolitical risks, continue to weigh on investors' sentiment and lend some support to the safe-haven precious metal. Nevertheless, the XAU/USD remain on track to register losses for the first time in the previous four weeks.

Technical Outlook

From a technical perspective, nothing seems to have changed much for the Gold price and failure to move back above the $2,050 level favours bearish traders. That said, oscillators on the daily chart are still holding in the positive territory and warrant some caution. Hence, it will still be prudent to wait for some follow-through selling below the weekly low, around the $2,030 area, before positioning for deeper losses. The XAU/USD might then accelerate the slide towards the 50-day Simple Moving Average (SMA), currently around the $2,011-2,010 area, en route to the $2,000 psychological mark. A convincing break below the latter will mark a fresh breakdown and pave the way for an extension of the recent downtrend witnessed over the past week or so.

On the flip side, momentum beyond the $2,050 immediate hurdle is more likely to confront stiff resistance near the $2,064-2,065 area ahead of the $2,077 zone. A sustained strength beyond the said hurdle could prompt a short-covering rally and allow the Gold price to aim back towards reclaiming the $2,100 round-figure mark. Some follow-through buying will negate any negative outlook and shift the near-term bias back in favour of bullish traders.

Gold daily chart