Gold price extends correction ahead of Friday’s Nonfarm Payrolls release
- Gold price breaks below $3,100 as market rout continues.
- Markets are still looking for direction after Trump’s reciprocal tariffs announcement.
- Gold is still pressured by profit-taking and looking for support to bounce off from.
Gold price (XAU/USD) is falling near 1% on Friday and, in the process, is snapping back below $3,100 to $3,082 at the time of writing. Bullion was able to avoid a complete meltdown by paring back Thursday’s losses, which were at one point over 2.50%, by closing off at only a loss of -0.65% just above $3,115. More selling pressure is currently at play while market participants mull their next moves and positioning.
Meanwhile, the focus this Friday will shift to the United States (US) economic data with the Nonfarm Payrolls (NFP) release. Expectations for the Nonfarm Payrolls range from 80,000 to 200,000, with the consensus view at 135,000. Federal Reserve (Fed) Chairman Jerome Powell might soothe markets with comments just thereafter, while investors are adding to the conviction that the central bank might cut interest rates four times by the end of this year.
Daily digest market movers: Stagflation fears on the agenda
- Gold stands to benefit this year from an increasingly volatile trade, macroeconomic and geopolitical environment, having surged almost 18% this year, Bloomberg reports.
- The CME FedWatch tool sees chances for an interest rate cut in May standing at 33.2% and growing. A cut in June is still the most plausible outcome, with only a 9.4% chance for rates to remain at current levels. In the overall yield curve since Thursday, markets are betting on three or even four markets.
- More and more scenarios are coming out for the possibility of the US sliding into a period of stagflation. In that case, Bullion would emerge as the winner, Reuters reports. The Atlanta Fed GDPNow Index currently stands at -2.84%.
Gold Price Technical Analysis: Look for the big pivotal levels
It is pretty normal that the Gold price rally was due to some profit-taking. This opens the door for opportunities, as the rally is not done yet. However, the tailwind for the next leg in the rally will change from tariff angst now to recession or stagflation fears.
Looking up, the daily Pivot Point at $3,112 must be reclaimed before aiming to revisit the all-time high at $3,167. That might be the limit on Friday, with the R1 resistance just above it at $3,170 and reinforcing this area as a strong barrier for further gains. There are very slim chances that the R2 resistance at $3,226 would be visited this Friday.
On the downside, the S1 support at $3,057 makes sense as the first support, seeing the bounce it triggered on Thursday. Further down, the $3,000 level is being exposed this Friday as the S2 support only comes in just below it at $2,998.
XAU/USD: Daily Chart
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.