Gold selling pressure persists as traders lock in profits ahead of US NFP report
- Gold attracts some sellers for the second straight day, though the downside seems limited.
- Rising geopolitical risks and dovish Fed-led USD weakness could support the precious metal.
- Traders might also opt to wait on the sidelines ahead of the crucial US NFP report on Friday.
Gold (XAU/USD) remains under some selling pressure for the second straight day and slides back closer to the overnight swing low during the Asian session on Thursday. The downtick lacks any fundamental catalyst and is likely to remain limited amid a supportive fundamental backdrop. The resilient global risk sentiment has started showing signs of weakness on the back of rising geopolitical tensions, which, in turn, could act as a tailwind for the safe-haven commodity. Moreover, dovish US Federal Reserve (Fed) expectations might contribute to limiting any further losses for the non-yielding yellow metal.
Meanwhile, Wednesday's mixed US macroeconomic releases did little to temper market bets of two more interest rate cuts by the US central bank this year. The outlook, in turn, fails to assist the US Dollar (USD) to capitalize on its gains registered over the past two days, which, in turn, should support the Gold price. Furthermore, traders might opt to wait for the release of the US Nonfarm Payrolls (NFP) report on Friday for more cues about the Fed's rate-cut path and before positioning for the next leg of a directional move. This, in turn, warrants some caution before placing aggressive bearish bets on the XAU/USD pair.
Daily Digest Market Movers: Gold underperforms despite a supportive fundamental backdrop
- The initial market reaction to the shocking US capture of Venezuelan President Nicolas Maduro over the weekend seems to have faded, prompting some follow-through profit-taking in Gold for the second straight day on Thursday. However, a combination of factors might hold back the XAU/USD bears from placing aggressive bets and help limit losses.
- US President Donald Trump threatened that Colombia and Mexico could face US military action as part of a widening campaign against criminal networks and regional instability. Adding to this, US Secretary of State Marco Rubio signaled no retreat from the President's aim to take over Greenland, and Trump retained the option to address the objective by military means.
- Moreover, the lack of progress in the Russia-Ukraine peace deal, unrest in Iran, and issues surrounding Gaza keep geopolitical risks in play, which could support the safe-haven precious metal. This, along with bets that the US Federal Reserve will lower borrowing costs in March and deliver another rate cut later this year, might help limit losses for the commodity.
- On the economic data front, the Institute for Supply Management reported an unexpected pickup in the US services sector activity in December, with its Non-Manufacturing Purchasing Managers' Index rising to 54.4 from 52.6 in November. The upbeat reading, however, was largely offset by a duo of rather unimpressive US labor market reports.
- According to the Automatic Data Processing (ADP) Research Institute, private-sector employment in the US rose by 41,000 in December against the 29,000 fall (revised from -32,000) in November and the 47,000 expected. Separately, the Job Openings and Labor Turnover Survey (JOLTS) showed that the number of job openings fell to 7.146 million in November.
- Traders, however, seem reluctant to place aggressive directional bets as the focus remains glued to the release of the US Nonfarm Payrolls report on Friday. The crucial employment details would influence market expectations about the Fed's policy path, which will drive the USD demand and provide a fresh impetus to the non-yielding yellow metal.
- In the meantime, Thursday's release of the usual Weekly US Initial Jobless Claims data could produce short-term trading opportunities around the XAU/USD later during the North American session. Nevertheless, the aforementioned fundamental backdrop makes it prudent to wait for strong follow-through selling before positioning for any further losses.
Gold could accelerate the fall once the $4,425 confluence support is broken decisively
From a technical perspective, the $4,425 confluence – comprising the 100-hour Simple Moving Average (SMA) and the 38.2% Fibonacci retracement level of the recent move up – could offer some support to the Gold price. A convincing break below might prompt some technical selling and drag the XAU/USD pair to the $4,400 mark. Meanwhile, the Moving Average Convergence Divergence (MACD) line sits below the Signal line and below zero as the histogram expands negatively, pointing to strengthening bearish momentum.
Moreover, the Relative Strength Index (RSI) at 40 is neutral-to-bearish and slipping, underscoring constrained upside. Immediate recovery attempts would face the 23.6% Fibo. retracement level, around the $4,450 region. Failure to reclaim that barrier would keep rebounds capped, while a sustained hold above the 38.2% level could stabilize the tone; a break beneath it would extend the correction despite the rising 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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