Gold snakes sideways ahead of US Non-Farm Payrolls

• Gold is taking a sideways turn as traders await the US Non-Farm Payrolls report for further clues on the path of Fed policy.
• A weak figure would rekindle speculation that the Fed will adopt a 50 bps rate cut in November, sending gold higher.
• Technically, XAU/USD is consolidating in an uptrend in the medium to long term.

Gold (XAU/USD) continues to trade sideways around $2,660 on Friday as traders prepare for the release of what is likely to be the most significant macroeconomic data report of the week, the US Nonfarm Payrolls (NFP) for September, published by USA. Bureau of Labor Statistics (BLS).

The report will help shed light on the state of the US labor market, which took over inflation as the US Federal Reserve’s (Fed) top concern in August after a key speech by Fed Chairman Jerome Powell in which he said: or welcomes a further cooling of labor market conditions”.

If the report shows that the US labor market has worsened – particularly a rise in unemployment – ​​it could bring back to the table the likelihood of the Fed making another double dose of 50 basis points (bps) (0.50%) to the November meeting. . That, in turn, would likely boost gold higher as lower interest rates increase its appeal as a non-interest-paying asset.

Gold: The next move is likely to depend on the US NFP report

However, gold’s upside could be limited if the NFP data reveals a healthy labor market, as this would likely further reduce the chances of a 50bps rate cut by the Fed at their next meeting. Relatively robust U.S. macroeconomic data cut market-based odds of a “jumbo” rate cut from 60% at one point last week to just over 30% at press time on Friday, according to CME’s Fedwatch tool.

On Thursday, the latest release – the US ISM Services PMI, a survey of purchasing managers in the sector – showed a stronger-than-expected expansion of activity in September. That said, a steady decline in inflation, as well as some cooling in the labor market, makes a cut of less than 25 bps (0.25%) almost certain and limits any downside for the precious metal.

Consensus expectations for the headline NFP figure of 140,000 beat a wide range of estimates — from Citibank’s 70,000 to 220,000 at the top end, according to Bloomberg News. This suggests that the market will remain on the sidelines until the release, and the final figure could cause volatility.

Gold maintains the lead on safe-haven demand

Gold is getting additional support from refuge flows due to concerns about an escalation of conflict in the Middle East. Israel is expected to launch an imminent retaliatory attack on Iran for its bombing on Tuesday night. Iran launched about 200 missiles, many of them ballistic, to avenge the death of Hassan Nasrallah, head of the Iran-backed Hezbollah group.

The yellow metal continues to be supported by the overall downward trend in global interest rates, allowing gold to retain its appeal as a portfolio asset for investors.

Technical Analysis: Gold is expanding sideways

Gold is further extending and narrowing its sideways market mode, clearly visible on the 4-hour chart below. It broke decisively below the 50-period simple moving average (SMA), suggesting a marginal bearishness to the near-term outlook.

The immediate range narrowed to a new high of $2,673 (Oct. 1 high) and a low of $2,638 (Oct. 3 low).

The short-term trend is sideways and, given the principle of technical analysis that “the trend is your friend”, it is more likely to resist with the price oscillating between the poles.

It would require a breakout either above the top of the range or below the bottom to confirm a new directional bias. This is possible given the risk of the event on the horizon.

XAU/USD 4 Hour Chart

A break above $2,673 would increase the chances of a resumption of the old uptrend, possibly leading to a continuation to the $2,700 round number target.

A break below $2,638 would lead to a move down to at least $2,625 (September 30 low). A break below this would likely see prices give way to support at $2,600 (high since August 20, round number).

In the medium to long term, gold remains in an uptrend, with the odds favoring an eventual higher recovery once the current period of consolidation is over.