Gold falls as traders cross their arms ahead of labor market data

• Gold is trading just below $2,500 as risk recedes, markets are calm and the US dollar recovers marginally.
• Traders await US labor market data this week before determining their next moves.
• The $2,500 level is key from a technical perspective and threatens to cave under bearish pressure.

Gold (XAU/USD) eases to $2,490 on Tuesday as a measure of market calm fades, not helping boost demand for safe-haven gold.

The US dollar (USD) – with which gold is negatively correlated – is slowing the recovery, trading only marginally higher on Tuesday as traders keep their dust dry ahead of this week’s release of labor market data from USA with potential movement.

Investors appear to be calmly awaiting the final “test results” for the patient — in this case the US economy — before drawing conclusions about the likely course of action going forward with regard to the Federal Reserve’s (Fed) decision on how much to reduce. interest rates – a key driver of gold.

Demonstrations in Tel Aviv calling for a cease-fire in Gaza after seven Israeli hostages were found dead and the calling of a general strike by Israeli workers have, if anything temporarily, lowered the threat level in at least one key geopolitical hotspot, adding to the uneasy calm that permeates the markets.

Gold traders look ahead to US employment data

The price of gold is most likely to experience volatility following the release of US labor market data this week. In his keynote speech in Jackson Hole, Fed Chairman Jerome Powell turned the spotlight away from inflation and turned attention to the fragile-looking labor market, suggesting that downside risks to employment now outweighed the risks rising inflation.

If labor market data comes out this week in the form of the ISM Manufacturing Employment Index on Tuesday, Jolts Job Openings on Wednesday, ADP Employment Change, Sommer Claims and ISM Services Employment Index on Thursday and Nonfarm Payrolls (NFP) on Friday, they will weaker than expected and supports his concerns, will likely lead to a decline in the US dollar (USD) but a rise in the price of gold.

Markets are debating whether the Fed will have to cut interest rates by 50 basis points (bps) in September or just a standard 25 basis point cut. The latter is fully expected, while market-based probabilities for the former currently stand at around 30%, according to CME’s FedWatch tool.

If the labor market data is decidedly below par, the chances of a bigger cut will increase, which in turn will give gold a head start on the charts. Lower interest rates are positive for the precious metal as they make it comparatively more attractive to investors as a non-interest-paying asset.

Technical Analysis: Mini-Range Test Base

Gold (XAU/USD) is testing the base of the mini-range it has been trading in since late August between $2,500 and $2,531. It is currently eroding the floor of the range, displaying marginally smaller dips as it descends. There is a risk that it could break lower and enter a new zone of activity between the tilted top of the old highs around $2,470 and $2,500.

XAU/USD 4 Hour Chart

That said, the yet-to-be-reached final target for gold is at $2,550 and remains active. This was generated after the initial breakout of the previous range that started in July, which also looks like a triangle pattern because of its sloping edges.

This bullish target was calculated by taking the 0.618 Fibonacci ratio of the height of the range or triangle and extrapolating it higher. This target is the minimum expectation for the continuation of a breakout based on the principles of technical analysis.

Gold’s medium to long-term trends remain bullish, which, given the trend is your friend, means the odds favor an eventual bigger breakout materializing.

However, it would require a break above the August 20 all-time high of $2,531 to provide further confirmation of a higher continuation towards the $2,550 target.

Alternatively, a break back into the previous range would negate the projected bullish target. Such a move would be confirmed at a daily close below $2,470 (August 22 low). It would change the picture for gold and suggest that the commodity could begin a short-term downtrend.