- This week, gold reached a new one-month peak surpassing $2,050.
- The technical analysis indicates a slightly bullish trend in the short term.
- The upcoming release of February labor market data from the US has the potential to elicit a significant response in XAU/USD.
Gold (XAU/USD) gained bullish momentum, surging to its highest point since early February, surpassing $2,050 on Friday. After consolidating in a narrow range during the first half of the week, the near-term technical outlook for XAU/USD presents positive indications for potential buyers. However, it’s noteworthy that investors might overlook technical readings when responding to the upcoming February labor market data from the US next week.
The price of gold increased as yields in the United States experienced a decline.
Lacking impactful macroeconomic data releases, the financial markets experienced subdued activity at the start of the week, with Gold recording minimal changes in the first two trading days. On Tuesday, US data revealed a 6.1% monthly decline in Durable Goods Orders, yet this figure did not elicit a significant market response.
On Wednesday, the US Bureau of Economic Analysis (BEA) revised the annualized Gross Domestic Product (GDP) growth from the initial estimate of 3.3% to 3.2%. This adjustment led to modest selling pressure on the US Dollar (USD) during American trading hours, allowing XAU/USD to finish the day with gains.
Gold exhibited bullish momentum on Thursday, reaching its highest level in nearly a month at $2,050.
The US inflation, measured by the Personal Consumption Expenditures (PCE) Price Index, showed a decline to 2.4% on a yearly basis in January, according to the BEA. This figure aligned with market expectations and followed December’s 2.6% increase. The Core PCE Price Index, the Federal Reserve’s preferred inflation gauge, rose 0.4% on a monthly basis, meeting analysts’ predictions. The immediate reaction to the PCE inflation data saw the benchmark 10-year US Treasury bond yield drop below 4.3%, supporting XAU/USD’s upward movement.
However, cautious remarks from Fed officials about the policy outlook helped the USD maintain its position, limiting Gold’s upside ahead of the weekend. Atlanta Fed President Raphael Bostic suggested a potential rate reduction in the summer, San Francisco Fed President Mary Daly warned against too swift rate cuts causing inflation to stall, and Cleveland Fed President Loretta Mester mentioned the uncertainty regarding the continuation of last year’s disinflation.
On Friday, Gold reached a new monthly high above $2,050 as US Treasury bond yields dipped during European trading hours.
The potential for an extended uptrend in the gold price hinges on a softer US jobs report. On Tuesday, the spotlight will be on the ISM Services PMI in the US economic calendar, with the forecast indicating that the headline PMI will remain above 50 in February, signaling continued expansion in the service sector’s business activity. January’s Prices Paid Index saw a significant jump to 64 from 56.7 in December, indicating an acceleration in input cost inflation. A similar rise in the inflation component for February might bolster the USD and put downward pressure on XAU/USD in the immediate aftermath.
Wednesday will see the release of the ADP Employment Change for February and January JOLTS Job Openings, marking the initial employment-related data for the week. In January, private sector payrolls increased by 107,000. A figure below 100,000 in ADP Employment Change could suggest a loosening labor market and potentially weaken the USD. Regarding the JOLTS report, job openings have hovered around 9 million since October, and unless there is a notable shift, investors may withhold reactions in anticipation of Friday’s February jobs report.
January’s Nonfarm Payrolls surged by 353,000, reinforcing expectations for the Fed’s decision to maintain the policy rate in March. Strong Consumer Price Index and Producer Price Index readings, coupled with robust labor market data, have revived expectations of a delayed policy pivot. According to the CME FedWatch Tool, there’s a 24% probability of a 25 basis points Fed rate cut in May, and a nearly 75% chance of a rate reduction in June, following the holds in March and May.
A significant drop in Nonfarm Payrolls growth below 150,000 could prompt investors to reconsider the likelihood of a May rate cut, triggering a USD sell-off in the immediate aftermath. Conversely, a print near 200,000 could reassure markets of a healthy labor market, potentially delaying the policy pivot until June. Market positioning indicates that the USD may have room for further gains in this scenario.
Next week, Fed Chairman Jerome Powell will present the Semiannual Monetary Policy Report, testifying before the House Financial Services Committee and Senate Committee on Banking, Housing, and Urban Affairs on Wednesday and Thursday, respectively.
Gold technical outlook
The technical outlook for gold reveals a positive stance as it comfortably closed above the 50-day Simple Moving Average (SMA) at $2,035 on Thursday, a level it struggled to surpass earlier in the week. The daily chart’s Relative Strength Index (RSI) indicator rose to 60 for the first time since early February, indicating an accumulation of bullish momentum.
On the upside, $2,060 stands as an interim resistance, being a static level. This is followed by $2,080, which marks the endpoint of the October-December uptrend, and $2,100, a psychological level. If XAU/USD retraces below $2,035 (50-day SMA), key support levels include $2,020 (100-day SMA, Fibonacci 23.6% retracement), before potentially targeting $2,000, which is both a psychological level and a static level.
