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6 Dec 2024
Gold price ticks higher ahead of US Nonfarm Payrolls report
- Gold price bounces back and moves higher ahead of the US NFP data for November, which will influence market expectations for the Fed’s interest-rate path.
- Traders lean toward the Fed reducing interest rates by 25 basis points on December 18.
- The violation of truce terms between Israel and Hezbollah has reignited tensions in the Middle East, providing further support to Gold.
Gold price (XAU/USD) recovers intraday losses and edges higher to around$2,640 in European trading hours on Friday ahead of the United States (US) Nonfarm Payrolls (NFP) data for November, a key release to get more cues about which direction US interest rates could be heading to.
The impact of the US labor market data on the Federal Reserve’s (Fed) likely interest rate action in the policy meeting on December 18 will be significant as officials became more focused on preserving labor demand when the central bank started reducing its key borrowing rates in September. The data will be released at 13:30 GMT.
According to the CME FedWatch tool, there is a 72% chance that the Fed will reduce interest rates by 25 basis points (bps) to 4.25%-4.50% this month, while the rest supports leaving interest rates unchanged.
Lower interest rates are positive for Gold because they reduce the opportunity cost of holding the non-interest-paying asset.
Economists expect the US economy to have added 200K fresh workers, significantly higher than 12K in October. The prior month’s NFP report stated that payroll employment estimates in some industries were affected by the hurricanes. The Unemployment Rate is estimated to have increased to 4.2% from 4.1%.
Investors will also pay close attention to the US Average Hourly Earnings data to get cues about the current status of wage growth. The measure is estimated to have increased by 3.9%, slower than 4% in October, on a year-on-year basis.
Ahead of the US NFP data, the US Dollar Index (DXY) – which tracks the Greenback’s value against six major currencies – holds the key support of 105.70. Meanwhile, 10-year US Treasury yields rise to nearly 4.19%.
Gold price remains well-supported by renewed tensions in Middle East
- Gold price is expected to face increased volatility as traders brace for the US official labor market data. However, heightened geopolitical tensions would continue to support the Gold price downside.
- The ceasefire agreement in the Middle East region between Israel and Hezbollah appears to be shaking as tensions have reignited, with each party blaming the other for violating the truce terms. The Israeli army carried out an array of airstrikes late Monday on Hezbollah in retaliation to their attack by two projectiles on the Israeli military post near Lebanon.
- Meanwhile, the war between Russia and Ukraine also keeps the broader risk appetite on its toes. Russian foreign minister Sergey Lavrov warned that Russia is ready to use any means to prevent the West from achieving its goal of inflicting a “strategic defeat” on the country, in an interview with US journalist Tucker Carlson, ThePrint reported.
- Heightened geopolitical tensions and global uncertainty improve the appeal of safe-haven assets such as Gold.
Technical Analysis: Gold price remains broadly sideways near $2,650
Gold price trades back and forth near the upward-sloping trendline around $2,650, which is plotted from the February low of $1,984.00 on the daily time frame. The precious metal wobbles near the 20-day Exponential Moving Average (EMA), which also trades around $2,650.
The 14-day Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, very close to the neutral level of 50, suggesting a sideways trend.
Looking down, the November low of around $2,537 will be the key support for Gold price bulls. On the upside, the October and all-time high of $2,790 will act as key resistance.
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.