Gold price remains capped, looks to US NFP report for new directional impetus

• The price of gold remains bound in a narrow trading range amid mixed fundamentals.
• Geopolitical risks support the metal, although recent USD strength limits gains.
• Traders also seem reluctant to look at the US NFP report before placing directional bets.

The price of gold (XAU/USD) is extending its sideways price consolidation move in a familiar range from the start of the current week as traders wait for a new catalyst before positioning for the next leg of a directional move. The focus therefore remains on the release of the closely watched monthly US employment details due later in the North American session on Friday. The familiar Non-Farm Payrolls (NFP) report could influence expectations about the pace of the Federal Reserve (Fed) rate cut cycle. This, in turn, will play a key role in boosting demand for US dollars (USD) in the near term and provide a significant boost to the unyielding yellow metal.

Heading into the key data risk, declining odds for more aggressive Fed policy easing and an outsized rate cut at the next policy meeting in November are keeping the US dollar (USD) firm near a one-month high from Thursday. This, in turn, is seen as a key factor acting as a headwind for the gold price. That said, a further escalation of geopolitical tensions in the Middle East and the growing risk of a wider conflict acts as a tailwind for the safe-haven precious metal. However, XAU/USD remains far from the all-time high reached last week.

Daily Digest Market Movers: Gold traders remain on edge ahead of crucial monthly US jobs report

• The US Department of Labor (DOL) reported on Thursday that the number of Americans filing for unemployment benefits rose marginally to 225,000 in the week ended September 28, compared with 218,000 previously.
• This comes on top of a stronger-than-expected increase in US private sector employment in September and an unexpected increase in the number of available jobs in August, providing evidence of a stable and still resilient labor market.
• Separately, the Institute for Supply Management (ISM) said its non-manufacturing PMI rose to 54.9 in September, the highest level since February 2023, suggesting the economy remained on a solid footing in the third quarter .
• This further tempers market expectations for another excessive rate cut by the Federal Reserve and lifts the US dollar to a one-month high, which in turn is seen as a key factor acting as a headwind for the unprofitable price of gold.
• Hezbollah fired about 230 projectiles from Lebanon into Israeli territory on Thursday, and Israel launched strikes on Friday morning targeting Hezbollah’s intelligence headquarters in the southern suburbs of the Lebanese capital Beirut.
• Meanwhile, it looks like Israel will carry out a very significant retaliation within days to Iran’s attack with nearly 200 ballistic missiles on Tuesday night, raising the risk of an all-out war and lending support to XAU/USD.
• Traders are now eagerly awaiting the US Nonfarm Payrolls (NFP) report, which is expected to show the economy added 140,000 jobs in September slightly lower than the previous 142,000, and the unemployment rate held steady at 4.2%.
• This, along with the Average Hourly Gain, will be looked at for clues on the size of the Fed’s rate cut in November, which will play a key role in boosting USD demand and provide fresh directional impetus to the commodity.

Technical outlook: Gold price bulls have the upper hand, while above the retracement support at $2,625-2,624

From a technical perspective, price action within the range could still be categorized as a bullish consolidation phase on the back of the recent strong advance to the record high. Moreover, the oscillators on the daily chart are staying comfortably in positive territory and have also dropped out of the overbought zone. This, in turn, favors bullish traders and suggests that the path of least resistance for gold prices remains up. Meanwhile, the $2,672-$2,673 area could provide immediate resistance ahead of the $2,685-2,686 area or the all-time high reached last week. This is closely followed by the $2,700 level, which, if conquered, will set the stage for an extension of a well-established multi-month uptrend.

On the other hand, the weekly low around the $2,625-2,624 area, which coincides with a short-term ascending channel resistance breakout point, could continue to provide support and act as a key pivotal point. A convincing break below could trigger aggressive technical selling and pull the gold price below the $2,600 level towards the next relevant support near the $2,560 area. The corrective decline could extend further towards the $2,535-$2,530 support before XAU/USD finally breaks down to the psychological $2,500 level.