Gold positions for a breakout ahead of December’s NFP report

Source Fxstreet
  • Gold price heads to $2,680 ahead of Nonfarm Payrolls release. 
  • The Fed needs to balance recent inflation fears. 
  • Gold could be set for a breakout towards $2,700, depending on the US employment report.

Gold’s price (XAU/USD) is set to keep its winning streak for a fourth straight day this week, currently trading around $2,680 at the time of writing on Friday. Inflation fears keep driving the precious metal higher while the Federal Reserve (Fed)  remains quite sidelined about it by now. Meanwhile, the possibility of fewer interest rate cuts is supporting the odds for Gold to hit $3,000 by mid-2026, according to Goldman Sachs, Bloomberg reports. 

On the economic data front, the Nonfarm Payrolls (NFP) release for December will be the crucial catalyst to decide whether Gold prices head higher or lower before closing off this week. Expectations for the Nonfarm Payrolls reading range from 100,000 to 268,000, with market consensus at 168,000. Expect any print below 100,000 to take away some inflation concerns and bring some profit-taking, while a print near or above 268,000 will spark more worries about interest rates remaining elevated.

Daily digest market movers: Employment report at crucial time

  • India’s government acknowledged it miscalculated import figures for precious metals for months. Preliminary estimates released earlier this week suggested gold imports for November stood at $9.84 billion — about $5 billion, or a third, lower than what was previously reported for the month. The ministry said Thursday it’s still in the process of the data, Bloomberg reports. 
  • Fed officials until now have signaled they’ll likely hold interest rates at current levels for an extended period, only cutting again when inflation meaningfully cools, Bloomberg reports. 
  • At 13:30 GMT, the US  employment report for December will be released with the following main key elements:
  • Nonfarm Payrolls headline data is expected to show 160,000 new workers against the previous 227,000 in November.
  • The Unemployment Rate is expected to remain stable at 4.2%.
  • The monthly Average Hourly Earnings are expected to ease a touch to 0.3% in December from the previous 0.4%.
  • Near 20:30,  Gold NC Net Positions will be released by the Commodity Futures Trading Commission (CFTC). Forecast for this time is not available but previous positioning was at $247,300 The report provides information on the size and the direction of the positions taken, across all maturities, participants primarily based in Chicago and New York futures markets. Forex traders focus on "non-commercial" or speculative positions, to determine whether a trend remains healthy or not and also market sentiment towards a certain asset.

Technical Analysis: Critical moment

It’s money time for Bullion as the price action knocks on the door of the upper band of the pennant chart formation on Friday. This afternoon’s US employment report will act as a catalyst and could push price action above the resistance zone, with prospects of a rise to $2,700 in the cards. A rejection would mean a move lower, with $2,614 possibly coming back into play. 

On the downside, the 55-day SMA at $2,653 acts as the first support after it saw a daily close above it on Wednesday. The 100-day Simple Moving Average (SMA) at $2,633 is the next in line. Further down, the ascending trend line of the pennant pattern should provide support at around $2,614, as it did in the past three occasions. In case that support line snaps, a quick decline to $2,531 (August 20, 2024, high) could come back into play as support level. 

On the upside, the descending trendline in the pennant chart formation at $2,682 is the first big upside level to watch. Once through there, $2,708 is the next pivotal level to look out for.

XAU/USD: Daily Chart

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.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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