Gold pauses after two-day recovery as US NFP looms

Gold experienced a brief surge above $4,500 on Thursday, driven by a weaker US Dollar, lower Treasury yields, and less aggressive language from Federal Reserve Governor Christopher Waller. However, the metal has since paused at around $4,472. The US Dollar steadied after a 0.55% decline on Thursday and fell below the 99.00 level, which has not been seen in over a week.

The US Dollar Index (DXY) is currently at 99.11. The US economy is projected to add 56,000 jobs in August, following a loss of 23,000 in July, while the Unemployment Rate is anticipated to stay at 4.1%. The focus will be on wage growth and revisions to the July payrolls report, given that May and June employment gains were revised down by a combined 103,000.

Fed Governor Waller mentioned seeing some signs of disinflation, stating that current policy might bring inflation back to 2%. He also emphasized that the September rate decision depends on August inflation data, suggesting he could consider a rate hike if inflation is higher than expected. His comments reduced the likelihood of a 25-basis-point rate increase in the upcoming September 15-16 meeting to around 50%, down from roughly 63% prior to his remarks.

A stronger-than-anticipated Nonfarm Payrolls report could rekindle expectations of a September rate increase, boost the US Dollar and Treasury yields, and put pressure on Gold. Conversely, a weaker-than-expected payroll reading could bolster the argument for maintaining rates, potentially helping Gold regain the $4,500 level. Analysts at OCBC remain optimistic about Gold but caution that near-term prospects are "highly sensitive to Fed repricing."

They note that payrolls numbers tonight may determine the next move in yields and the USD, while next week's CPI and PPI data could be more crucial in assessing whether the recent disinflation trend is strong enough to keep the Fed on hold. They also point out that geopolitical tensions remain marginally supportive, but higher oil prices could be a double-edged sword if they fuel inflation expectations and yields.

The precious metal is currently above the 100-day Simple Moving Average (SMA) at approximately $4,354 and still below the 200-day SMA near $4,534, indicating a neutral and consolidative market tone. The price has reattached to the 38.2% Fibonacci retracement near $4,448, which now acts as immediate support, though it has not challenged the 23.6% retracement at $4,544.

The Relative Strength Index (RSI) is at 55, reflecting mild positive momentum, while the Moving Average Convergence Divergence (MACD) is still below zero, signaling that recovery attempts may still face resistance near the 200-day average. Should the price fall below $4,448, support could be found at the 38.2% Fibonacci level, followed by the 50.0% retracement at $4,371 and the 100-day SMA near $4,354.

If the market slides further, it would expose the 61.8% retracement at $4,293 and the lower Fibonacci levels at $4,183 and $4,042. On the upside, bulls need to surpass the 200-day SMA near $4,534, with the 23.6% retracement at $4,544 serving as a secondary ceiling. A sustained break above these levels could pave the way toward the prior swing high near $4,700.