Gold falls as traders increase Fed hawkish bets after stellar NFP
- Gold drops as strong NFP boosts Fed hike expectations.
- The US Dollar stays firm despite fading post-jobs yield spike.
- PPI and CPI data could confirm September tightening bets.
Gold (XAU/USD) price retreats by about 0.80% on Friday, after registering losses of over 2% following the release of an upbeat US jobs report. This boosted the Greenback amid growing speculation that the Federal Reserve (Fed) could raise rates if inflation data next week comes hotter than expected. At the time of writing, XAU/USD trades at $4,437.
XAU/USD retreats as upbeat jobs data supports Dollar and September tightening risks
Nonfarm Payrolls in August crushed estimates of 56K, coming in at 162K, while July’s print was upward revised from -23K to 21K. At the same time, the Unemployment Rate was unchanged at 4.1%. The data reassured Fed officials that if needed, they can raise rates without harming the labor market.
Last week, Fed Chairman Kevin Warsh said the jobs market was “consistent with full employment” in a speech in Jackson Hole, in which he leaned hawkish, placing inflation as the foremost mission.
On Thursday, Fed Governor Christopher Waller said the Fed isn't rushing to raise rates if inflation cools, but a weak data release next week favors a rate increase at the FOMC's meeting.
Money markets have priced in a 61% chance for a rate increase by the Fed at the September meeting, up from 54% a day ago, as shown by Prime Terminal.
US Treasury yields, namely the 10-year T-note, rose to a high of 4.81% before erasing post-NFP gains and are down to 4.768%. The Greenback also gave back some of its gains, but it remains in positive territory, as indicated by the US Dollar Index (DXY).
The DXY, which measures the performance of the US Dollar against six currencies, is up 0.13% at 99.13.
Following the US NFP release, traders await next week’s producer and consumer inflation reports. If both show persistent disinflation, a rate hike might not be necessary.
Next week, the US economic docket highlight will be the release of the Producer Price Index (PPI), the Consumer Price Index (CPI), jobless claims data, the US Monthly Budget Statement and the University of Michigan Consumer Sentiment for September.
XAU/USD technical outlook: Gold consolidates within 100- and 200-day SMAs
Price action shows Gold is poised to trade sideways, capped on the downside by the 100-day Simple Moving Average (SMA) at $4,354 and on the upside by the 200-day SMA at $4,534.
The Relative Strength Index (RSI) is bullish, but in the short term it is trending downward toward the 50-neutral level, an indication that sellers are gaining momentum.
For a bearish continuation, XAU/USD must drop below the $4,400 mark, followed by the 100-day SMA. Below this area, the next target will be the day's low at $4,282.
For a bullish continuation, Gold must rise above $4,450. If buyers gain enough momentum, they could challenge $4,500 before targeting August’s monthly peak of $4,697.
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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