Gold buoyed by haven flows as US outlook weighs

• Gold finds support from continued haven flows and long-term investor demand.
• This acts as a counterweight to the pressure of reduced interest rate cut expectations in the US.
• Technically, XAU/USD continues to consolidate in an uptrend in the medium to long term.

Gold (XAU/USD) continues to slide for about a week between around $2,630 and $2,670 on Monday after the release of negative gold US employment data is offset by persistent haven demand.

US non-farm payrolls (NFP) beat economists’ expectations by a wide margin, rising by 254,000 in September, when forecasts were for an increase of just 140,000, according to data released on Friday. The U.S. unemployment rate, meanwhile, fell to 4.1 percent from 4.2 percent when markets feared otherwise, according to data from the Bureau of Labor Statistics (BLS). The release revealed that the US economy is in good shape, avoiding fears of a “hard landing”.

The reason the NFP report is important is because, since August, the labor market has taken over from inflation as the main concern of the US Federal Reserve (Fed). Then-Fed Chairman Jerome Powell said in a keynote speech that “We do not seek or welcome further cooling in labor market conditions.”

The better-than-expected NFP data significantly reduced the chances of the Fed making another double dose of 50 basis points (bps) (0.50%) at its November meeting. The probability of such an outcome fell to zero on Monday from about 35 percent before the release, with markets even pricing in a more than 10 percent chance that the Fed would not cut interest rates at all, according to CME’s Fedwatch tool.

Consequently, the NFP release pushed the price of gold to its lowest level of the day at around $2,632 on Friday. That’s because the expectation that interest rates will remain high reduces gold’s appeal as a non-interest-paying asset and strengthens the US dollar (USD), adding another headwind to the yellow metal, which is primarily quoted and traded in foreign currencies. .

Gold finds support from safe haven demand

The price of gold is benefiting from continued demand as a safe haven asset as the conflict in the Middle East worsens and intensifies. According to the latest reports, Israeli forces blew up a mosque in the southern Lebanese village of Yaroun, says Aljazeera News.

Markets are also reeling as Israel is expected to launch an imminent retaliatory attack on Iran after last week’s missile attack. 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 is further supported by hopes of a revival in demand from China following the government’s decision to stimulate the economy with a huge package of measures. China is the largest market for gold, so the health of the Chinese economy can be a key factor influencing its price.

In addition, the general downward trend in global interest rates – despite the recalibration of their trajectory in the US – allows gold to retain its attractiveness as a portfolio asset.

Technical Analysis: The gold range is trading in the trend line

Gold is extending its narrow sideways move, clearly visible on the 4-hour chart below. It also touched a key trend line, which provides a firm level of support at the lows.

The immediate range consists of a ceiling of $2,673 (high of October 1) and a ceiling of $2,632 (low of October 4) – while the trendline also provides a rising shelf of support in the middle of $2,440.

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

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 $2,632 would lead to a move down to at least $2,625 (September 30 low). A break below this level would likely see prices give way to support at $2,600 (high since August 18, round number).

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

It would require a breakout either above the top of the range or below the bottom to confirm a new directional bias.