Gold (XAU/USD) drifts lower at the start of a new week and moves away from its highest level since June 17, touched on Friday following the disappointing release of the US Nonfarm Payrolls (NFP) report. In fact, the crucial US monthly employment data showed that the economy unexpectedly lost 23K jobs in July, while the previous month’s reading was also revised down to 20K from 57K. This pointed to signs of a cooling US labor market and undermined the case for the US Federal Reserve (Fed) to raise interest rates, which, in turn, weighed heavily on the US Dollar (USD) and provided a goodish lift to the non-yielding bullion.
The immediate market reaction, however, turned out to be short-lived as uncertainties surrounding the Middle East crisis and the reopening of the Strait of Hormuz offered some support to the safe-haven Greenback. In fact, Iran reiterated conditions for a full reopening of the critical waterway, including an end to the US naval blockade, the removal of sanctions and compensation for war damage. Moreover, Tehran has ruled out direct talks with the US, citing alleged violations of the interim peace agreement reached in June. This keeps the geopolitical risk premium in play and underpins the USD, exerting some pressure on gold.
Meanwhile, the US-Iran standoff acts as a tailwind for crude oil prices. Investors remain worried that rising energy prices will rekindle inflationary pressures and force major central banks to adopt a more hawkish stance. Furthermore, the CME Group’s FedWatch Tool indicates that traders are still pricing in a greater chance that the US central bank will raise borrowing costs by the year-end. The outlook remains supportive of elevated US Treasury bond yields, which favors USD bulls and backs the case for a further depreciating move for gold. Traders, however, might opt to wait for the latest US inflation figures this week.
According to TD Securities, “the risk of a hike lingers,” but the bank argues that upcoming inflation data could shift market pricing meaningfully. The team expects “core and headline CPI this week (0.20% m/m and 0.15% m/m, respectively)” and contends that such outcomes “would likely lead to further pricing out of hikes.” With “the majority of the recent move higher in rates driven by Fed expectations,” TD Securities adds that “rates could move lower as hikes are priced out.”
XAU/USD daily chart
Technical Analysis
The XAU/USD pair keeps a broadly capped tone below the 100-day Simple Moving Average (SMA) at roughly $4,390 and the 200-day SMA near $4,496. Meanwhile, the Moving Average Convergence Divergence (MACD) stays positive, and the Relative Strength Index (RSI) holds in a bullish but not yet overbought region around 64. Moreover, the commodity has reclaimed the 38.2% Fibonacci retracement of the April-June downfall at about $4,303.27, though the cluster of higher retracement levels and longer-term averages overhead still suggests rallies are vulnerable.
On the topside, immediate resistance emerges at the 100-day SMA near $4,390, followed by the 50% retracement around $4,414. A daily close above these would expose the 200-day SMA at approximately $4,496 and the 61.8% retracement near $4,525, with further barriers at the 78.6% level around $4,683 and the recent cycle high close to $4,884. On the downside, initial support is seen at the 38.2% retracement near $4,303, ahead of the 23.6% level around $4,166, while a deeper setback toward the anchor zone near $3,944.21 cannot be ruled out if sellers regain control.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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