Gold price (XAU/USD) jumps to a more than two-week high near $4,085 during the early Asian session on Friday, bolstered by a weaker US Dollar (USD) and lower oil prices. Traders will closely monitor the US September employment report for clues on rate policy, due later on Friday.
The precious metal extends the rally after the Democrats swept the US midterm elections. The sweep of Congress by Democrats sent oil sharply lower on speculation the election would speed an end to the Iran war and prompted investors to trim bets on US Federal Reserve (Fed) rate hikes.
“It’s not that at this point rate hike expectation has completely disappeared,” said David Meger, director of metals trading at High Ridge Futures. “As we’ve seen the weaker energy prices, there’s an expectation that we will see some fears of inflation subside and the potential for a lesser need for rate hikes down the road,” David added.
Markets are now pricing in nearly a 70.9% probability that the Fed will raise rates in December, according to CME’s FedWatch tool. Higher interest rates increase the opportunity cost of holding non-yielding gold.
The US jobs data will take center stage on Friday, which could offer some hints on the central bank’s trajectory. The Nonfarm Payrolls (NFP) is expected to show 65,000 job additions in September, while the Unemployment Rate is projected to stay unchanged at 4.2% during the same period. Any signs of improvement in the US labor market could lift the Greenback and undermine the USD-denominated commodity price in the near term.
Gold finds support as softer USD and lower yields lift precious metals
Strategists at OCBC report that “precious metals rebounded sharply following the US midterm elections, supported by a softer USD, lower US Treasury yields and oil prices as markets reassessed the implications of political gridlock for US fiscal policy and growth.” They highlight that “gold rallied around 3%, reclaiming the 4000 level,” with expectations that political gridlock may constrain fiscal expansion and weigh on US growth providing “some relief to yields,” while “slippage in oil prices also lent support.”
OCBC notes that, “encouragingly, gold has started to respond more positively to a favourable macro backdrop, following its earlier reluctance to benefit from lower yields and USD weakness.” The bank is “cautiously optimistic that gold may be finding its footing,” but stresses that “further gains would likely require some moderation in Fed tightening expectations and continued recovery in investment demand.” The strategists add that they “continue to monitor real yields, USD direction, oil prices and ETF flows for signs of sustained buying interest,” with “Friday’s US payrolls” flagged as “another important test.”
Technical Analysis: Gold remains capped under the 100-day SMA
In the daily chart, XAU/USD remains capped in the near term, as spot holds below the 100-day simple moving average (SMA) while clinging just above the 20-day Bollinger middle band. This configuration suggests a corrective phase within a broader high-price environment, with the Relative Strength Index (RSI) at 49.63 signaling neutral to slightly positive momentum that has yet to challenge the dominant overhead trend barrier.
On the topside, initial resistance is defined by the 100-day SMA at $4,200, with the upper Bollinger band near $4,250 acting as the next hurdle if buyers manage a break higher. On the downside, immediate support is located at the 20-day Bollinger middle band around $4,070, ahead of a deeper cushion at the lower Bollinger band near $3,895, where a decisive drop would likely reinforce bearish pressure in the short term.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
