Gold Price Forecast: XAU/USD spikes and retreats, drops to fresh multi-week low post-NFP

Update: Gold faded an early North American bullish spike and dropped to a fresh three-week low, around the $1.785 region in reaction to mixed US jobs report. The headline NFP showed that the economy added 199K new jobs in December, missing estimates for a reading of 400K. The disappointment, however, was offset by an upward revision of the previous month’s reading to 249K from 210K. Adding to this, the unemployment rate fell to 3.9%, beating expectations for a modest downtick to 4.1% from 4.2% previous, reaffirming expectations for an eventual Fed lift-off in March.

This was evident from elevated US Treasury bond yields, which, in turn, continued acting as a headwind for the non-yielding yellow metal. That said, modest US dollar weakness continued lending some support to the dollar-denominated gold. This, along with the cautious mood around the equity markets, helped limit the downside for the safe-haven XAU/USD. Nevertheless, spot prices remain on track to post the biggest weekly decline since late November.

Previous update: Gold remained depressed for the third successive day on Friday and was last seen hovering near a two-week low, just below the $1,790 level during the early European session. A slight improvement in global risk sentiment – as depicted by a generally positive tone around the equity markets – acted as a headwind for the safe-haven XAU/USD. Apart from this, the Fed's hawkish outlook was seen as another factor that undermined the non-yielding yellow metal. It is worth recalling that the minutes of the December FOMC meeting released on Wednesday showed that some policymakers want to tighten monetary policy faster to combat stubbornly high inflation.

The markets were quick to react and are now anticipating a roughly 80% chance for an eventual lift-off in March, which was further reinforced by the overnight comments by Fed officials. St. Louis Fed President James Bullard said that the Fed could raise rates as soon as March and is now in a good position to take more aggressive steps to control inflation. Separately, San Francisco Fed President Mary Daly too supported the prospects for an early rate hike. This comes on the back of a shift from  Minneapolis Fed President Neel Kashkari, expecting two rate hikes this year as against his long-held view that the Fed should hold off on rate hikes until 2024.

This, in turn, pushed the US 2-year notes, which are sensitive to rate hike expectations along with 5-year notes, to a near two-year high. Moreover, the yield on the benchmark 10-year US government bond shot to levels not seen since March 2021. Investors, however, preferred to wait and see if the US jobs data (NFP), due later during the early North American session, would reinforce the need for higher interest rates. This, in turn, kept US dollar bulls on the defensive and extended some support to the dollar-denominated gold. Nevertheless, the commodity, at current levels, remains on track to post the biggest weekly decline since late November.

Technical outlook

From a technical perspective, this week’s rejection near the $1,830-32 supply zone and the subsequent downfall might have already shifted the bias in favour of bearish traders. Some follow-through selling below the $1,785 horizontal support will reaffirm the negative outlook and set the stage for a further near-term depreciating move. Gold might then accelerate the downward trajectory towards the $1,770-69 intermediate support en-route to the December 2021 swing low, around the $1,753 region.

On the flip side, the $1,800 mark, coinciding with a technically significant 200-day SMA, now seems to act as immediate strong resistance. Sustained strength beyond might trigger a short-covering move and push gold prices towards the $1,815 hurdle. Some follow-through buying should allow bulls to aim back to challenge a strong barrier near the $1,830-32 region.

Gold daily chart

Technical levels to watch