Gold has kicked off a new week on a bearish footing, resuming the previous downside while battling the $4,400 level amid a United States (US) holiday-led light trading.
Gold is down, but doesn’t seem out
Gold is facing headwinds from the latest uptick in Oil prices, which continue to stoke inflationary concerns and flag the need for policy tightening globally.
The bright metal thrives on lower interest rates, and expectations of rate hikes by major global central banks, including the US Federal Reserve (Fed), undermine non-yielding bullion.
This, in addition to Friday’s robust US labor market report, keeps Fed rate hike bets on the table for the September monetary policy meeting.
The headline Nonfarm Payrolls (NFP) increased by 162,000 in August, nearly triple the forecast of 56,000. The Unemployment Rate was unchanged at 4.1%, while the Labor Force Participation Rate rebounded to 61.6% from 61.4% in July.
According to TD Securities, the latest data reinforce the view that the jobs backdrop remains resilient. They argue that, when the official figures are considered alongside “a private-sector that is looking up from a jobs perspective,” it “suggests that the labor market is in a good place, and possibly getting better.”
Markets continued to price in a roughly 57% chance that the Fed will hike rates this month following the NFP release, with much now depending on Friday’s Consumer Price Index (CPI) inflation data.
However, the downside in Gold seems capped by a broadly stable US Dollar (USD), as buyers quickly faded the post-NFP spike amid concerns over rising US government debt and the aggressively hawkish Bank of Japan (BoJ) repricing, which has pushed the Japanese Yen (JPY) firmly higher at the expense of USD/JPY.
USD traders also seem to ignore the latest strikes exchanged between the US and Iran in the Strait of Hormuz, as thin trading conditions and Fed expectations ahead of inflation data this week keep them on edge. The US markets are closed on Monday in observance of Labor Day.
Looking ahead, Gold remains vulnerable to renewed USD strength if US-Iran tensions escalate further. Thin market conditions could exaggerate Gold price moves.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,401.00, hovering between key moving averages and leaving the near-term bias broadly neutral. Spot gold holds above the 50-day simple moving average (SMA) near $4,247 and the 100-day SMA around $4,350, which together suggest underlying demand on dips, but price has slipped below the 21-day SMA at about $4,463 and remains well under the 200-day SMA near $4,536, indicating that recovery attempts are still capped by medium- and long-term trend barriers. The Relative Strength Index (RSI) around 50 points to balanced momentum, reinforcing the view that the market is consolidating rather than trending decisively.
On the topside, immediate resistance emerges at the 21-day SMA around $4,463, with a stronger cap at the 200-day SMA near $4,536, where sellers could reassert control if price extends higher. On the downside, initial support is seen at the 100-day SMA close to $4,350, ahead of the 50-day SMA near $4,247, and a break below this latter zone would expose a deeper corrective phase, while holding above it would keep the broader consolidation pattern intact.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
