The gold price (XAU/USD) is having a tough time establishing a clear near-term direction as it continues its consolidative price movement, influenced by a mix of fundamental factors. It remains within a familiar trading range during the first half of the European session on Thursday.
Geopolitical risks, including the escalating Russia-Ukraine conflict, concerns over potential trade wars, and the political unrest in France and South Korea, are providing support to gold, which is widely regarded as a safe-haven asset. Additionally, the relatively weak performance of the US Dollar (USD) is also lending a helping hand to the precious metal.
However, expectations that the Federal Reserve (Fed) will adopt a less dovish stance have led to a modest increase in US Treasury bond yields. This has put a cap on the upward movement of the non-yielding gold price. Remarks from several members of the Federal Open Market Committee (FOMC), such as Fed Chair Jerome Powell, on Wednesday indicated that the central bank will be cautious when it comes to cutting interest rates. As a result, traders are being cautious and refraining from making bold directional bets on the XAU/USD ahead of the eagerly anticipated US Nonfarm Payrolls (NFP) report due on Friday.
Anticipating the US NFP Report for Market Impetus
On Wednesday, the Federal Reserve’s Beige Book revealed that US economic activity has expanded slightly in most regions since early October. Inflation is rising at a moderate pace, and businesses are expressing optimism about the future.
St. Louis Fed President Alberto Musalem stated that it might be appropriate to pause interest-rate cuts as early as the December meeting, given that the risks of reducing borrowing costs too quickly are greater than those of not cutting enough. Fed Chair Jerome Powell acknowledged that the US economy is in excellent shape and stronger than expected, and that the central bank can take a more cautious approach in reducing rates towards the neutral level. San Francisco Fed President Mary Daly also emphasized that there is no rush to lower interest rates and that more work is needed to achieve the 2% inflation target and sustainable economic growth.
Speculations regarding the policies of US President-elect Donald Trump, which suggest they could reignite inflation, have led to the belief that the Fed might halt rate cuts or even raise rates again. This has caused a slight rebound in the US bond yields. The yield on the benchmark 10-year US government bond has bounced back after hitting its lowest closing level since October 21, exerting some downward pressure on gold on Thursday.
Meanwhile, the US Dollar has struggled to gain significant momentum. Concerns that Trump’s trade tariffs could trigger a second wave of global trade wars are acting as a tailwind for the gold price. Traders are now looking forward to the release of the US Weekly Initial Jobless Claims later on Thursday for some market direction. Nevertheless, the main focus remains firmly fixed on the highly anticipated US NFP report on Friday.
Technical Outlook Favors Bears for Now
From a technical perspective, the breakdown of the multi-day ascending channel this week has provided a key signal for bearish traders. However, the neutral oscillators on the daily and 4-hour charts suggest that it would be wise to wait for a clear indication of further selling below the recent trading range support, around the $2,630 area, before expecting more significant losses. If the price does decline further, it could potentially drop below the weekly swing low of around $2,622 – $2,621 and head towards the $2,600 mark. The downward trend might even extend to the 100-day Simple Moving Average (SMA), currently near the $2,681 area, and then towards the November monthly trough of around $2,537 – $2,536.
On the upside, the $2,655 area is likely to act as an immediate resistance, followed by last Friday’s swing high of around $2,666. If there is a notable increase in buying, leading to a break above the $2,677 – $2,678 level, the gold price could aim to regain the $2,700 milestone. Any further upward movement is likely to face strong resistance near the $2,721 – $2,722 supply zone. A decisive break above this level could shift the market sentiment in favor of bulls and potentially trigger a significant upward move in the near future.
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