Gold tumbles as strong US NFP data points to gradual Fed rate cuts

• Gold falls after robust US jobs report eases pressure on Fed.
• The 10-year U.S. note yield climbs to 3.971 percent, while the U.S. dollar index hits a mid-August high of 102.58, capping gold’s gains.
• Geopolitical risks involving Israel and Iran support gold, which could hit $2,700.

Gold is recovering after a stronger-than-expected US jobs report suggested the labor market remains solid and the Federal Reserve (Fed) is likely to ease policy in 25 basis point (bps) increments. At the time of writing, XAU/USD is trading at $2,643, down 0.40%.

The US Bureau of Labor Statistics (BLS) revealed that the labor market is far from in a tough spot following a stellar September jobs report. The data eased pressure on the Fed, which cut borrowing costs by 0.50% at its September meeting amid fears of reaching the US central bank’s maximum hiring mandate.

The unemployment rate fell by two-tenths, while Average Hourly Earnings were mixed, with monthly readings falling, while in the 12 months to September they rose.

Traders reacted to the data, pushing the 10-year U.S. T-bill yield up 12 basis points to 3.971 percent, a level last seen in mid-August 2024. That was one reason gold prices capped. The U.S. dollar index ( DXY ), which tracks the greenback against a basket of six pairs, also hit its highest level since mid-August at 102.58, up 0.63 percent.

The data locked in a 25 bps rate cut by the US central bank at its next meeting in November. In fact, a minimal percentage of investors expect the Fed to keep rates unchanged.

Next week, the US file will feature data on inflation, jobless claims and consumer sentiment from the University of Michigan.

Chicago Fed President Austan Goolsbee, not a 2024 voter but one of the most dovish members of the Federal Open Market Committee (FOMC), said more reports like this “will make me more confident that we’re lining up to hire complete”. He said most Fed officials expect rates to fall “very much” over the next 18 months.

Meanwhile, geopolitics will continue to limit the downside of bullion prices. An escalation of conflict involving Hezbollah, Iran, Israel and the United States (US) would support XAU/USD prices and open the door to challenge $2,700.

Daily Market Reasons: Gold prices fall on US recession fears

• US non-farm payrolls rose by 254,000 in September, beating the estimate of 140,000 and the upwardly revised August figure of 159,000. The unemployment rate fell from 4.2% to 4.1%, less than expected.
• Average hourly earnings in September rose 0.4% on the month, down from 0.5% the previous month, but beating forecasts of 0.3%.
• Hourly earnings rose 4% in the 12 months to September, beating estimates and August’s numbers of 3.8% and 3.9% respectively.
• Market participants ignored a 50 bps cut by the Fed. The odds of a 25 bps cut are 95 percent, while the odds of keeping rates unchanged are 5 percent, according to CME FedWatch Tool data.

XAU/USD Technical Analysis: Gold price drops below $2,650, eyeing key technical level below $2,600

The price of gold consolidated near $2,640-$2,670 for the fifth consecutive day after the relative strength index (RSI) left overbought territory. Price action remains range-bound as buyers lose momentum, opening the door for a pullback.

If XAU/USD reaches a daily close below $2,650, look for a decline towards the September 18 high support, which became $2,600. Once broken, the next area of ​​demand would be the 50-day simple moving average (SMA) at $2,524.

Conversely, for a bullish continuation, XAU/USD needs to break above $2,670 to stand a chance of challenging the year-to-date high of $2,685. Next up will be the $2,700 mark.