Gold retreats from two-week high as strong US NFP tempers March Fed rate cut bets
- Gold drifts lower as traders trimmed bets for a March Fed rate cut after the upbeat US NFP.
- The Fed is still seen cutting rates twice in 2026, which fails to help the USD attract any buyers.
- Moreover, threats to the Fed’s independence help limit the downside for the precious metal.
Gold (XAU/USD) edges lower during the Asian session on Thursday and reverses part of the previous day's positive move to a nearly two-week high. The commodity, however, lacks follow-through selling and currently trades just above the $5,050 level, down less than 0.50% for the day, amid mixed cues.
The blowout US Nonfarm Payrolls (NFP) report released on Wednesday tempered market expectations for a more aggressive policy easing by the Federal Reserve (Fed) and prompts some selling around the non-yielding bullion. The closely-watched US monthly employment details showed that the economy added 130K new jobs in January, up from the previous month's revised print of 48K and beating expectations for a reading of 70K.
Other details revealed that the Unemployment Rate edged lower to 4.3% from 4.4%, while annual wage inflation, as measured by the change in the Average Hourly Earnings, held steady at 3.7%, compared to the expectation of 3.6%. Traders were quick to react and are now pricing in around a 95% chance that the US central bank will leave rates unchanged in March, up from 80% the previous day, according to the CME's FedWatch tool.
Meanwhile, Cleveland Fed President Beth Hammack said that the labor market looks like it is finding a healthy balance and that it is important for the central bank to get back to the 2% inflation goal. She added that policy is right around neutral and that it is good for the Fed to hold rates unchanged. Adding to this, Kansas City Fed President Jeffrey Schmid noted that further rate cuts could allow higher inflation to persist for longer.
The US Dollar (USD), however, struggles to capitalize on the post-NFP bounce from a nearly two-week low as traders remain confident that the Fed will deliver two 25 basis points (bps) rate cuts this year, with the first reduction seen in July. Adding to this, threats to the US central bank's independence keep the USD bulls on the defensive and help limit the downside for the Gold price, warranting some caution for aggressive bears.
The market attention now shifts to the release of the latest US consumer inflation figures on Friday, which could offer more cues about the Fed's rate-cut path and drive the USD demand. In the meantime, Thursday's release of the US Weekly Initial Jobless Claims will be looked upon for short-term opportunities. Nevertheless, the supportive fundamental backdrop might continue to support and act as a tailwind for the Gold.
XAU/USD 4-hour chart
Gold could attract dip-buyers amid bullish technical setup
Momentum signals are mixed as the Moving Average Convergence Divergence (MACD) histogram contracts toward the zero mark at 0.17, with the MACD line marginally above the Signal line and upside pressure fading. The Relative Strength Index prints at 55.65 (neutral), aligning with a modest bullish tilt. The 200-period Simple Moving Average (SMA) on the 4-hour chart rises steadily, and the Gold price holds above it, preserving a positive underlying bias. The 200 SMA currently stands at $4,757.23 and serves as immediate dynamic support.
Measured from the 5,599.68 high to the 4,409.26 low, the XAU/USD trades between the 50% retracement at $5,004.47 and the 61.8% Fibonacci retracement at $5,144.94, with the latter acting as resistance. A decisive push through the latter could extend the recovery phase, while failure to build momentum would keep XAU/USD consolidating above the rising 200-period SMA.
(The technical analysis of this story was written with the help of an AI tool.)
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.
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