Gold consolidates below recent highs as USD strength and Fed hike bets cap ahead of US NFP

Gold stalls the previous day’s retracement slide from its highest level since June 18.
Geopolitical risks, inflation fears and Fed hike bets underpin the USD, capping gains.
Traders also seem hesitant to place aggressive bets ahead of the key US NFP report.

Haresh Menghani FXStreet

Gold (XAU/USD) consolidates below $4,250 during the Asian session on Friday and, for now, seems to have stalled the previous day's retracement slide from its highest level since June 18. Traders seem hesitant to place aggressive directional bets and opt to wait for the release of the crucial US Nonfarm Payrolls (NFP) report amid persistent geopolitical uncertainties.

In fact, Saudi Arabia said that an intelligence report indicates Iraqi militias coordinating with the Houthis in Yemen for an imminent attack on the kingdom. Furthermore, Iranian state news reported that a framework agreement over the management of the Strait of Hormuz would prohibit passage of US, Israeli, and hostile vessels until compensation was paid. This dampens hopes for a diplomatic resolution to end the five-month-old US-Iran war, which supports the safe-haven US Dollar (USD) and should cap the upside for Gold.

Meanwhile, the US-Iran standoff, along with missile attacks on Saudi oil tankers by Yemen's Iran-aligned Houthis, further adds to worries about energy supply disruptions and helps crude oil prices to preserve Thursday's strong gains. Investors remain concerned that elevated oil prices will rekindle inflationary pressures and force major central banks, including the US Federal Reserve (Fed), to adopt a more hawkish stance.

According to the CME Group's FedWatch Tool, traders are still pricing in over an 80% chance that the US central bank will raise borrowing costs by the end of this year. This favors the USD bulls and warrants caution before positioning for the resumption of the XAU/USD pair's recent move up from the $4,000 psychological mark. Traders now look to the US jobs data for more cues about the Fed's policy path and fresh impetus.

Analysts at OCBC note that “near-term momentum has improved,” with the upcoming US payrolls report now seen as “key to whether the decline in yields, USD and gold’s breakout can be sustained.” They point out that gold was “last seen at 4247 levels,” with “daily momentum is mild bullish while RSI rose to near overbought conditions.” On the technical front, OCBC highlights “resistance at 4333 (23.6% fibo retracement of 2026 high to low), 4393 (100 DMA)” and “support at 4160 (50 DMA), 4077 (21 DMA),” suggesting a constructive bias while acknowledging that the sustainability of the recent move will hinge on the tone of US data.

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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