Gold bulls flinch as NFP puts Fed hawks back in the driver’s seat
Gold (XAU/USD) price dives over 0.40% on Monday following last Friday’s US jobs report, which ignited speculation that the Federal Reserve (Fed) might resume its tightening cycle if inflation reaccelerates late this week, while the labor market remains solid.
Gold prices dipped nearly 0.40% on Monday, following the release of the US Nonfarm Payrolls data last Friday. The report, which showed a significant increase in employment, raised concerns that the Federal Reserve might begin its tightening cycle if inflation starts to pick up. The XAU/USD pair traded at $4,412, after reaching a high of $4,435 during the day.
The US jobs report revealed that August employment surged past expectations, increasing by 162K, while July's figure was revised upward from -23K to 21K. The Unemployment Rate remained stable at 4.1%. As a result, US Treasury yields rose, strengthening the US Dollar. The US Dollar Index (DXY) fell 0.25% to 98.91. Traders will closely monitor US producer-side data and the Consumer Price Index (CPI) on Thursday and Friday.
Meanwhile, tensions between the US and Iran escalated when Washington conducted airstrikes on three Iranian tankers in retaliation for a ballistic missile attack on US Navy ships. This incident, along with other factors, contributed to the volatility in the market. Gold's price action was subdued due to reduced trading volume, but it found support at the 100-day Simple Moving Average ($4,350) and the $4,500 level.
Analysts noted that a downward trend in the Relative Strength Index (RSI) suggested a potential downward move in the near term. The first support for XAU/USD in case of further declines was identified at $4,400. If a decisive breakout occurs, the next support levels would be the 100-day SMA at $4,350, followed by $4,300 and the August 25 daily high at $4,697.
Gold has long been considered a safe-haven asset, providing stability during times of economic uncertainty. Central banks have been increasing their Gold reserves, particularly in emerging economies like China, India, and Turkey, to bolster their currency's strength. The inverse relationship between Gold and the US Dollar, as well as US Treasuries, is well-established, with Gold typically rising when the Dollar falls and vice versa.
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