Gold Price Forecast: XAU/USD eyes acceptance above $5,000, kicking off a big week
- Gold recaptures $5,000 as reflationary trades pick up following the outcome of the Japanese snap election.
- The US Dollar struggles amid a fresh sell-off in USD/JPY, reviving dovish Fed expectations.
- Technically, Gold needs a daily closing above $5,000 to reinforce the broader bullish trend.
Gold is consolidating the latest uptick at around the $5,000 mark, with buyers gathering pace for a sustained uptrend as a critical week kicks off.
All eyes remain on the delayed Nonfarm Payrolls (NFP) and Consumer Price Index (CPI) data from the United States (US) due on Wednesday and Friday, respectively.
Gold cheers reflationary trades
Heading into the big week, dovish sentiment surrounding the US Federal Reserve (Fed) leads the way amid resurfacing reflationary trades, aiding Gold to sustain its Friday’s solid recovery from near the $4,650 region.
Following weak US labor data released last week, markets continued to price in the first Fed interest rate cut for this year in June, despite investors having mixed views on Fed Chair nomination Kevin Warsh’s monetary policy stance.
Meanwhile, markets cheer appetite for more reflationary trades, fuelled by the Japanese ruling Liberal Democratic Party’s (LDP) majority win in snap elections, which bolstered expectations for a debt-driven stimulus.
Furthermore, the renewed weakness in the USD/JPY pair following intense verbal intervention by the Japanese authorities weighs on the US Dollar (USD), helping the bright metal stay afloat.
However, Gold buyers struggle with the recovery momentum as risk sentiment remains in a sweeter spot due to expectations of expansionary fiscal policies in Japan. Japanese equity indices surge to record highs, driving Asian stocks.
Looking ahead, it remains to be seen if Gold can continue its turnaround as traders could turn cautious and resort to repositioning ahead of Wednesday’s January jobs report.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $5,023.88. The 21-day Simple Moving Average (SMA) climbs above the 50-, 100- and 200-day SMAs, with all slopes rising, underscoring a firm bullish trend. Price holds above these gauges, keeping buyers in control. The Relative Strength Index (RSI) stands at 57.72, above the 50 midline and away from overbought, indicating steady positive momentum. Immediate dynamic support aligns with the 21-day SMA at $4,873.06.
The bullish alignment suggests pullbacks would remain contained while the price holds above the faster average. A daily close beneath that line could open a deeper retracement toward the 50-day SMA at $4,563.97. The ongoing rise in the medium- and long-term SMAs reinforces a buy-on-dips stance and keeps the broader trend pointed higher.
(The technical analysis of this story was written with the help of an AI tool.)
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
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Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
