Gold (XAU/USD) Analysis

• Bumper non-farm payrolls for January sees rate cut odds pushed back
• US yields continue to rise after NFP and Powell’s confirmation that March is not the base case for first rate cut
• Gold prices drop, weighed down by tapered rate cut bets and stronger USD
• The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

NFP Data Builds on December Momentum – Easing Rate Cut Odds

Non farm payroll data for January surprise to the upside causing a spike in volatility heading into the weekend. Employment data showed that 353k new jobs were created in January compared to the 180k anticipated.

Not only that, but I substantial upward revision of the December data revealed that January was not an isolated phenomenon and that the labor market is not only robust but is strong. In addition, the unemployment rate remained at 3.7% in contrast to forecasts of 3.8.

The labour market is the one data point that markets are watching intensely as restrictive monetary policy appears to have had little effect on the jobs market in the fight to bring inflation back down to 2%.

US Yields Rise in Response to NFP Data, Powell’s March Pushback

U.S. government yields towards the shorter end of the curve I've risen sharply since Friday, providing A headwind for gold. Gold typically responds in an inverse manner towards US yields and The US dollar. The chart below shows gold price action overlaid with the US two year bond yield (in blue). The inverse relationship can be seen along with the recent sharp rise into your yields which has contributed to gold's decline.

Gold vs US 2-Year Yields (Inverse relationship)

Source: TradingView, prepared by Richard Snow

In addition, Jerome Powell had an interview with CBS in which he confirmed the Fed plan on delivering three rate cuts in 2024 and played down the potential for March as the month of the first cut. The Federal Reserve Chairman also provided some guidance around incoming inflation data which requires little improvement to convince the Fed that cutting rates in the coming months will be appropriate.

Gold Prices Drop, Weighed Down by Dollar Strength

Gold prices fell on Friday, failing to close above the psychological level of $2,050 which set up a continuation of the short-term bearish momentum into the start of the week. On Monday the early test was always going to be whether or not gold prices can push further to breach the 50 day simple moving average (SMA) which it has done on an intraday basis towards the end of the London session.

Gold prices are a function of many variables which all astute traders are aware of. Find out what these are and how to use approach gold trading via our dedicated trading guide:

The stronger dollar weighs on the dollar priced commodity and higher US yields makes the non-interest-bearing metal less attractive. Gold now looks to test the $2,010 level with $1,985 secondary level of support.

Gold (XAU/USD) Daily Chart

Source: TradingView, prepared by Richard Snow

https://www.dailyfx.com/news/gold-prices-fall-in-response-to-rising-yields-usd-post-fomc-20240205.html