Oct 07, 2022
VOT Research Desk
The price of gold is retreating from three-week highs for the third straight day.
US payroll data may make the extent of the November Fed rate rise clearer.
With an eye on important US event risks, XAU/USD bulls may have a difficult battle ahead of them.
On the final trading day of the week, the price of gold is declining but is still over $1,700. The dazzling metal is on course for the highest weekly rise since March despite a three-day downturn; it is now up 3%. In the run-up to the crucial Nonfarm Payrolls report, the US dollar and Treasury rates are consolidating their recent recovery, putting the metal priced in USD on the back foot. Investors avoid from making any directional bets on the bullion as pre-NFP cautious trading rules the day, while a little adjustment of holdings cannot be completely ruled out. The US labor market data is crucial because it will make clear the Fed’s intentions to raise interest rates in the upcoming months.
In September, the American economy is projected to add 250K jobs, down from the 315K jobs added in August. A good surprise in the headline figures might rekindle hopes for a 75 basis point Fed rate hike next month, igniting a new upward trend for the dollar at the expense of gold. However, the ongoing risk trend as well as the end-of-week flows may also have an impact on how gold responds to the NFP event risk.
On Thursday, as sellers remained in wait at higher levels, XAU/USD maintained its corrective mode from three-week highs. The dramatic comeback gains in the dollar and rates were the major factors that caused the yellow metal to decline, as recent mixed US economic data cast doubt on the likelihood of a swift Fed tightening. In addition, escalating geopolitical tensions between the West and Russia and the rise in oil prices put investors on edge and encouraged them to seek refuge in the dollar.
The dollar’s resurgence as a safe currency and a halt in the rates’ decline from a multi-year peak was bad signs for the price of non-yielding gold. Bulls on the dollar also applauded the Fed’s hawkish remarks, which contributed to the decline in the metal. The US ADP employment expanded by 208K vs. +200K estimates earlier this week. However, the US ISM Services PMI slipped to 56.7 in September while the Prices Paid component dipped to 68.7 vs. 69.8 consensus predictions, and the dollar surge swiftly subsided. The US weekly initial claims for unemployment rose last week at their highest rate in the previous four months. Although the Reuters story that gold-supplying banks have reduced shipments to India ahead of big festivals in favor of focusing on China, Turkey, and other countries where greater premiums are provided capped the drop in the precious metal.
XAU/USD Technical Analysis Report
The pivotal horizontal 50-Daily Moving Average (DMA), which is currently around $1,722, continues to drag down the price of gold.
On the daily sticks, the rebound to three-week highs earlier this week that followed the previous consolidation has assumed the appearance of a probable bull pennant.
To validate the bullish continuation pattern, buyers require a clear break over the significant barrier at about $1,722. The 50 DMA and the resistance of the descending trend line meet at that point.
The next significant upward objectives are lined at the round number of $1,730 and the September high of $1,735, over which a new uptrend into the psychological threshold of $1,750 becomes possible.
The bullish potential in the metal is supported by the 14-day Relative Strength Index (RSI), which is positive above the midline.
The bull pennant will be invalidated, however, if daily close falls below the rising trend line support at $1,707, allowing bears to stretch their muscles against the prior crucial resistance now cushioned at $1,700 before heading into the weekly low of $1,695.
The horizontal 21 DMA at $1,681 will become more visible with further drops, and this will serve as the XAU bulls’ line in the sand.
