Gold Price Forecast: XAU/USD risks a correction, with eyes on US Nonfarm Payrolls data
- Gold price eases off all-time highs of $2,165 early Friday.
- Dollar and Treasury yields mire in lows, as US Nonfarm Payrolls data is in the spotlight.
- Overbought RSI conditions on the daily chart continue to warrant caution for Gold buyers.
Gold price is on a steady corrective decline from an all-time high of $2,165 set on Thursday, as the US Dollar licks and Treasury bond yields lick their wounds heading into the critical US Nonfarm Payrolls (NFP) data release later on Friday.
Gold price trades with caution
Gold buyers are trading with caution early Friday, as a correction could be in the offing after the recent upsurge and on another upside in the US NFP headline figure. The US economy is likely to have added 200K jobs last month, as against a surprise gain of 353K in January. Average Hourly Earnings are set to rise at an annual pace of 4.4% in the reported period, down from the 4.5% registered previously.
Disappointing US labor market report is likely to exacerbate the pain in the US Dollar while lifting Gold price to a fresh lifetime high, as it could affirm the increasing expectations of a US Federal Reserve (Fed) interest rates cut in June.
On Thursday, Fed Chair Jerome Powell echoed the comments delivered during his testimony before the House Financial Services Committee on Wednesday, stating that rate cuts "can and will begin" this year. Powell added that the Fed policymakers are still not convinced that continued progress toward their 2% inflation objective is “assured,” and that it won’t make sense to cut interest rates until they are confident.
The day of Powell’s testimony accentuated the decline in the US Dollar, as it hit the lowest level in two months against its major counterparts.
All eyes now remain on the all-important US NFP data for fresh hints on the timing and the scope of the Fed rate cut, especially after the downbeat employment data released earlier this week and Fed Chair Powell’s dovish tone.
The US private sector added 140,000 jobs in February, an increase from the upwardly revised 111,000 in January but a bit below the expected 150,000 additions, ADP reported on Wednesday. The number of job openings on the last business day of January stood at 8.86 million, the US Bureau of Labor Statistics (BLS) reported in the Job Openings and Labor Turnover Survey (JOLTS) on Wednesday, coming in slightly below the market forecast of 8.9 million.
Gold traders also remain wary of the end-of-the-week flows and profit-taking the bright metal, as they gear up for next week’s Consumer Price Index (CPI) inflation data from the United States.
Gold price technical analysis: Daily chart
The near-term technical outlook for Gold price remains more or less the same, with a correction expected anytime soon, the 14-day Relative Strength Index (RSI) continues to remain in a highly overbought zone.
If Gold sellers jump in, Gold price could test the initial support at $2,144, the previous day’s low.
The next cushion is seen at $2,121, the intersection of Wednesday’s low and the 23.6% Fibonacci Retracement (Fibo) level of the recent rally from the February 14 low of $1,984 to the all-time high of $2,165.
A sustained break below that level could help Gold sellers flex their muscles toward the $2,100 threshold.
However, any retracement in Gold price could be seen as a good dip-buying opportunity, as the 21-day Simple Moving Average (SMA) and the 50-day SMA Bull Cross remains in play.
On the flip side, Gold buyers need to capture the $2,200 threshold for them to sustain the uptrend. Ahead of that, the record high at $2,165 and the $2,180 resistance will come into play.
(The first bullet point in this story was corrected on Friday at 06:37 GMT to say that "Gold price eases off all-time highs of $2,165 early Friday," not early Thursday.)
Gold FAQs
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.
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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.
