Gold edges higher as Fed rate cut bets undermine USD ahead of NFP data

• Gold gains some positive traction on Friday as Fed rate cut bets undermine the USD.

• Trade-related uncertainties further bolster the safe-haven precious metal.

• Traders now look to the US NFP report for more Fed rate-cut cues and a fresh impetus.

Gold (XAU/USD) edges higher during the Asian session on Friday and looks to build on the overnight bounce from the vicinity of the $3,500 psychological mark. The commodity remains within striking distance of the all-time peak touched this week and continues to draw support from a combination of factors. The growing acceptance that the US Federal Reserve (Fed) will deliver at least two 25-basis-point (bps) rate cuts by the end of this year, starting this month, keeps the US Dollar (USD) bulls on the defensive and continues to underpin the non-yielding yellow metal. Adding to this, trade-related uncertainties further benefit the safe-haven commodity.

However, the upbeat mood – as depicted by a generally positive tone around the equity markets – might keep a lid on the Gold price amid still overbought conditions on short-term charts. Traders might also refrain from placing aggressive bets and opt to wait for the release of the closely-watched US monthly employment details, due later during the North American session. The popularly known US Nonfarm Payrolls (NFP) report could provide cues about the Fed's rate-cut path, which, in turn, will drive the USD and the XAU/USD pair in the near term.

Daily Digest Market Movers: Gold continues to be underpinned by firming Fed rate cut expectations

US data released on Thursday pointed to further signs of a cooling labor market and boosted bets that the Federal Reserve will cut interest rates later this month. In fact, the Automatic Data Processing (ADP) reported that US private-sector employers added 54,000 jobs in August, down from a 106,000 (revised from 104,000) increase recorded in July and below expectations of 65,000.

Separately, a report from the US Department of Labour (DOL) showed that the number of Americans filing new applications for unemployment benefits increased to 237K for the week ending August 30. The reading was above the 230K estimated and higher than the previous week’s 229K. This overshadows the upbeat US ISM Services PMI, which rose to 52 in August from 50.1 in July.

US President Donald Trump signed an executive order on Thursday formalizing the lower tariffs on Japanese automobile imports and other products that were announced in July, boosting sentiment. Meanwhile, Trump has asked the Supreme Court for an immediate hearing in hopes of overturning an appeals court ruling that deemed most of his tariffs illegal, keeping uncertainties in play.

Traders now look forward to the US Nonfarm Payrolls (NFP) report, which is anticipated to show that the economy added 75K jobs in August and the Unemployment Rate edged higher to 4.3%, from 4.2% in July. Any significant divergence from the expected readings would lead to a repricing of future interest rate cuts by the Fed, which, in turn, will influence the US Dollar and the Gold price.

In the meantime, New York Fed President John Williams said on Thursday that the central bank must balance inflation and job market risks right now. Williams added that trade and immigration factors are slowing activity, and the GDP will grow 1.25-1.5% this year. He expects the jobless rate to rise to about 4.5% next year and gradual interest rate cuts over time if the economy meets forecasts.

Chicago Fed President Austan Goolsbee crossed the wire this Friday, noting that the labor market might be deteriorating and inflation might be picking back up. Rates are better indicators for the labor market than raw job growth, and there is a bit of wait-and-see because of the uncertainty, Goolsbee added further. The hawkish-sounding remarks, however, do little to provide any impetus to the Greenback.

Gold bulls turn cautious amid overbought daily RSI; short-term trading range breakout in play

The overnight bounce from the 23.6% Fibonacci retracement level of the recent rally from the vicinity of the $3,300 mark, or the 100-day Simple Moving Average (SMA) support, comes on top of the recent breakout through a multi-month-old range. This, in turn, favors the XAU/USD bulls, though the overnight daily Relative Strength Index (RSI) makes it prudent to wait for some consolidation or a modest pullback before the next leg up.

In the meantime, any further move up beyond the $3,560 area is likely to confront some barrier near the $3,578-3,579 region, or the all-time peak touched on Wednesday. The subsequent momentum in the uncharted territory should allow the Gold price to aim towards conquering the $3,600 mark, or the trading range breakout target.

On the flip side, any corrective pullback might continue to find decent support near the 23.6% Fibo. retracement level, ahead of the $3,500 psychological mark. Some follow-through selling could pave the way for a deeper corrective slide to the $3,440 area, or the trading range resistance breakpoint. A convincing break below the latter will suggest that the Gold price has topped out and shift the near-term bias in favor of bearish traders.