Gold is looking to build the recovery momentum above the $4,100 mark amid a cautious start to a new week, filled with key US economic releases, including the critical September Nonfarm Payrolls (NFP) due on Thursday.
Gold eyes clarity on Fed’s policy outlook
Gold finds fresh buyers early Monday, following two back-to-back days of losses, fuelled by diminishing odds that the US Federal Reserve (Fed) will lower interest rates next month.
Markets are currently pricing in a 46% probability of such a move, the CME Group’s FedWatch Tool shows, down from about 67% seen a week ago.
Amid elevated inflation and weak private sector employment data from the United States (US), Fed officials struck a cautious tone, pushing back against expectations of further easing in December, still weighing the impact of the recent two rate cuts.
This hawkish narrative weighed heavily on Gold, fuelling a late pullback from three-week highs of $4,245. Despite the corrective decline, Gold managed to eke out gains over the week.
The Bureau of Labor Statistics (BLS) said on Friday that the September jobs report will be released on Thursday, leading to the end of a 43-day dry spell of data publication.
Traders now look to take profits off the table on their recent Gold short positions, bracing for a spate of missed data flow, which could provide clarity on the health of the US economy and the Fed’s path forward on interest rates.
However, any upside attempts in Gold will likely be capped by persistent US Dollar (USD) strength against the Japanese Yen (JPY) and the Pound Sterling (GBP) as both Japan and the UK face fiscal challenges.
Additionally, reduced physical demand for the bright metal from Asia will continue to act as a headwind. According to Reuters, elevated prices curtailed buying activity in Asia, with discounts in India reaching their highest level in five months.
Technical Analysis
In the daily chart, XAU/USD trades at $4,088.10. The 21-day Simple Moving Average (SMA) has started to soften at $4,066.78 after a strong run, while the 50-, 100- and 200-day SMAs continue to rise. Short-term averages remain stacked above the longer ones, and price holds above all of them, suggesting buyers retain control. The 14-day Relative Strength Index (RSI) sits at 54 (neutral), maintaining a modest positive tone above its midline.
Measured from the $4,381.17 high to the $3,885.84 low, the Fibonacci framework shows the 38.2% retracement at $4,075.05 reclaimed, putting the 50% retracement at $4,133.50 in focus as the next resistance. A daily close above that barrier would open the way toward a deeper recovery, while failure to extend gains would keep consolidation risks in play above the 21-day SMA as initial dynamic support and leave the broader uptrend bias intact.
(The technical analysis of this story was written with the help of an AI tool)
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.
