Daily Price Outlook
Gold prices (XAU/USD) struggled to halt their bearish trend, lingering around the 2,687 mark and touching an intra-day low of 2,679.
However, the main catalyst for this decline was stronger-than-expected U.S. jobs data, which suggested a healthier job market and reduced the likelihood of aggressive interest rate cuts by the Federal Reserve. This provided a boost to the U.S. dollar, further pressuring gold prices.
Traders, who had initially hoped for rate cuts, quickly adjusted their expectations after the robust nonfarm payrolls report, which dampened the outlook for future rate reductions.
As a result, gold's appeal as a safe haven diminished, with higher interest rates making non-interest-bearing assets like gold less attractive.
However, gold prices did not experience a sharp decline due to ongoing uncertainty surrounding the economic outlook, particularly with the potential changes under U.S. leadership. This uncertainty has kept some demand for gold intact.
US Labor Data and Fed's Hawkish Stance Push Gold Lower
On the U.S. front, the US dollar remains strong, holding near a two-year peak, while U.S. Treasury yields have stayed elevated at their highest levels in over a year. This strength in the USD and yields has put pressure on gold prices, which do not offer yield.
The catalyst for this shift is the upbeat U.S. Nonfarm Payrolls (NFP) report, which has reinforced expectations that the Federal Reserve (Fed) will pause its rate-cutting cycle this month.
On the data front, the U.S. Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls increased by 256,000 in December, significantly surpassing market expectations of 160,000, as well as the previous month's figure of 212,000. Moreover, the Unemployment Rate dropped unexpectedly to 4.1% from 4.2%.
Despite these positive numbers, there was some relief for inflation concerns as annual wage growth, measured by Average Hourly Earnings, slowed to 3.9%.
This strong labor market data highlights the resilience of the U.S. economy, diminishing the likelihood of further rate cuts.
Therefore, the strong U.S. labor market data, including robust Nonfarm Payrolls and lower unemployment, reduces the likelihood of Fed rate cuts.
This strengthens the U.S. dollar and Treasury yields, making gold less attractive, leading to downward pressure on its price.
Geopolitical Tensions Drive Safe-Haven Demand, Supporting Gold Prices
On the geopolitical front, persistent global tensions have heightened investor demand for safer assets, providing some support for gold prices.
Recent developments, including increased sanctions by the U.S. and U.K. against Russia’s oil industry, have added to market uncertainty.
These sanctions, targeting nearly 200 vessels in Russia’s shadow fleet, have further strained the global market.
Moreover, ongoing military actions between Russia and Ukraine have escalated, with reports of intensified strikes by Russian forces on Ukrainian military targets, including airfields and vehicles.
The continued use of drones, missiles, and artillery underscores the growing instability, boosting demand for gold as a safe-haven asset.
Tensions in the Middle East also remain elevated, with violations of the ceasefire agreement between Israel and Hezbollah, as well as ongoing Israeli strikes in Gaza.
These geopolitical uncertainties have further fueled demand for gold, as investors seek protection from increasing instability in key regions around the world.
GOLD (XAU/USD) – Technical Analysis
Gold prices are trading at $2,686.40, down 0.12% on the day, as markets navigate between conflicting technical signals. The 4-hour chart highlights $2,679.88 as the critical pivot point.
A break above this level could push prices toward immediate resistance at $2,705.44, with further targets at $2,724.66 and $2,741.68. However, if prices fail to hold above $2,679.88, immediate support lies at $2,663.62, followed by stronger levels at $2,645.00 and $2,614.89.
The 50-day EMA at $2,652.30 confirms a bullish undertone, with prices consistently trading above this average.
However, the RSI signals consolidation, suggesting reduced momentum. Traders should monitor for a potential breakout above $2,680 to confirm a bullish continuation. On the downside, a break below $2,663 could lead to a sharper decline.
The current strategy suggests entering long positions above $2,680 with a target of $2,704, placing stop-loss orders at $2,663 to manage risk effectively.
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