XAU/USD pulls back from highs, holds $2,500 level

XAU/USD Current Price: $2,510.25

• The US ISM services PMI showed upbeat output in the sector in August.
• A weaker U.S. labor market has fueled speculation of a bigger interest rate cut.
• XAU/USD loses near-term bullish power but holds above $2,500.

Spot gold hit a high of $2,523.45 a troy ounce on Wednesday, advancing the most during European trading hours, while the U.S. dollar fell ahead of the release of top United States (U.S.) data.

On the one hand, the country released employment figures that confirmed a weaker labor market and thus fueled hopes of a further rate cut by the Federal Reserve (Fed) this month. On the other hand, growth data indicated that the economy remains resilient despite record rates and somewhat cooled the markets.

The US released the ADP Employment Change report, which showed that the private sector added 99,000 new jobs in August, well below the 145,000 expected. Also, the Challenger Job Cuts report showed that layoffs in August rose to 75,891, the highest monthly figure in fifteen years, while year-to-date hiring hit an all-time low. Finally, initial jobless claims for the week ended Aug. 30 came in at 227,000, below the 230,000 expected and the previous 232,000.

The data initially weighed on the US dollar, which later recovered after the release of August’s ISM services purchasing manager’s index (PMI) as services output rose more than expected. The index reached 51.5 compared to 51.4 shown in July and 51.1 anticipated.

Wall Street started the day on a positive note, but quickly reversed course. US indices are trading mixed, with only the Nasdaq Composite holding in the green. Finally, US Treasury yields remain low, with the 10-year and 2-year notes reaching around 3.74% each.

Market focus now turns to the main US labor force release, the Nonfarm Payrolls (NFP) report. The country is expected to have added 160,000 new positions in August, while the unemployment rate is forecast at 4.2 percent, down from 4.3 percent previously. The forecast may suffer last-minute reviews from market analysts after the hot numbers released recently.

XAU/USD Short Term Technical Outlook

XAU/USD has pulled back from the aforementioned high and is currently hovering around $2,510. Technically, the daily chart shows that it has found buyers near a 20 Simple Moving Average (SMA), which is heading firmly north at around $2,493.60. Meanwhile, longer moving averages continue to advance well below current levels. Finally, technical indicators remain in positive levels, although only the Relative Strength Index (RSI) is advancing, limiting the bullish scope for XAU/USD.

In the short-term, and according to the 4-hour chart, risk is tilted to the upside, although momentum has declined. Technical indicators retreated from their intraday highs before stabilizing in positive levels. At the same time, the 20 and 100 SMAs are converging around $2,498.00, offering modest upward slopes. For the most part, the shiny metal is expected to enter a consolidation phase ahead of the US NFP report.

Support levels: 2,498.00 2,489.60 2,475.70

Resistance levels: 2,519.75 2,531.60 2,545.00