Gold Price Forecast: XAU/USD climbs to over one-week high, beyond $1,810 ahead of NFP

Update: Gold built on the overnight sharp bounce from levels below the $1,790 level and gained some follow-through traction on the last day of the week. The momentum extended through the first half of the European session and pushed spot prices to an over one-week high, around the $1,814 region.

The US dollar languished near a two-and-half week low and was pressured by the hawkish European Central Bank-inspired gains in the shared currency. This, in turn, was seen as a key factor that extended some support to the dollar-denominated gold. Apart from this, the prevalent cautious market mood was seen as another factor that acted as a tailwind for the safe-haven XAU/USD. The flight to safety was reinforced by a pullback in the US Treasury bond yields, which further undermined the buck and benefitted the non-yielding yellow metal.

The upside, however, is likely to remain capped amid a more hawkish stance adopted by major central banks to combat persistently high inflation. In fact, the Bank of England hiked its benchmark interest rate by 25 bps on Thursday and the vote distribution showed that four out of nine MPC members backed an aggressive 50 bps increase in borrowing costs. Separately, the ECB President Christine Lagarde acknowledged mounting inflation risks and did not repeat previous guidance that an interest rate hike this year was extremely unlikely.

Investors might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the release of the closely-watched US monthly jobs data. The popularly known NFP report, due later during the early North American session, will influence the USD price dynamics. This, along with the US bond yields and the broader market risk sentiment, should allow traders to grab some short-term opportunities around gold.

Previous update: Gold (XAU/USD) buyers take a breather around weekly high ahead of the key US jobs report as European traders brace for Friday’s bell.

The yellow metal eases from intraday top to $1,806, paring daily gains to 0.06%, by the press time. Even so, the bullion remains firmer on a weekly basis while consolidating the previous week’s losses, the biggest since late November.

While downbeat US dollar and inflation fears could be cited as the key reason behind the XAU/USD’s previous upside, the pre-NFP caution seems to test the gold buyers of late. That said, geopolitical fears emanating from Russia add to the bearish bias over the traditional risk-safety.

European Central Bank (ECB) and the Bank of England (BOE) portrayed a hawkish play the previous day, highlighting inflation as the key challenge.

However, mixed comments from Richmond Fed President Thomas Barkin seem to have stopped the US dollar from cheering the risk-off mood. “The US Federal Reserve needs to begin raising interest rates but it is too soon to say how far or fast that process will need to go to bring inflation under control,” said Fed’s Barkin per Reuters. On the same line were indecisive US economics as the ISM Services PMI for January and Q4 Nonfarm Productivity came in strong but Factory Orders for December and Q4 Unit Labor Costs weakened the previous day.

Elsewhere, Russia warned the West to not escalate tensions and the same seems to have underpinned the upside moves in gold prices.

It should be noted, however, that an impressive performance of stock futures, mainly due to Amazon’s upbeat results, is likely supporting the daily uptick in gold prices.

Amid these plays, the US 10-year Treasury yields rose 1.8 basis points (bps) to 1.845%, bracing for the first weekly gain in three while S&P 500 Futures rise 1.14% around 4,520.

Looking forward, the negative surprise from the US ADP Employment Change for January, to -301K versus +207K forecast, keep gold traders on the edge ahead of the US Nonfarm Payrolls (NFP), expected 150K versus 199K prior. Should the US jobs report portray a positive outcome than widely feared, gold prices may pare the weekly gains.

Read: US January Nonfarm Payrolls Preview: Analyzing gold's reaction to NFP surprises

Technical analysis

Gold retreats towards the weekly support line while extending pullback from the 200-SMA. Also portraying seller’s dominance is the receding bullish bias of MACD and sluggish RSI.

Furthermore, the 50-SMA cuts the 200-SMA for the downside, in what is known as the Bear Cross chart pattern, suggesting additional weakness of the precious metal.

That said, gold sellers may initially aim for the horizontal area comprising January’s low, around $1,783-81.

However, bears will gain extra strength on breaking 78.6% Fibonacci retracement (Fibo.) of December-January upside, near $1,773.

Alternatively, the 50-SMA around $1,808 guards immediate recovery moves of gold ahead of the 200-SMA near $1,812.

Following that, the support-turned-resistance line from December 15, near $1,818, will defend bears. It’s worth noting that the gold buyers will gain a conviction on crossing the 23.6% Fibonacci retracement level of $1,831.

Gold: Four-hour chart

Trend: Further weakness expected