Blowout NFP lifts Fed hike odds as gold tumbles below $4,100

Gold retreats nearly 1% to $4,060 following a peak of $4,106.
Against expectations of 65K, US payrolls climb 165K; Unemployment declines to 4.1%.
A December Fed hike now carries 77% odds as the US Dollar regains 102.00.

Gold came under pressure on Friday, losing nearly 1% after touching $4,106 as a much stronger-than-forecast US employment report lifted the likelihood of a Federal Reserve (Fed) rate increase at its December meeting. At the time of writing, XAU/USD is trading at $4,060.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Can XAU/USD Recover After Strong US Jobs Data as Next Week’s US CPI Approaches?

Risk appetite remains upbeat, with investors buying the dip in US equities after October Nonfarm Payrolls (NFP) reached 165K, comfortably exceeding the 65K forecast. The previous month’s NFP reading was also revised higher, from 29K to 60K. With employers adding jobs across a wide range of sectors, the Unemployment Rate consequently eased to 4.1% from 4.2%.

Resilience in the US economy, despite volatile energy prices, is evident in both the jobs figures and the encouraging University of Michigan US Consumer Sentiment report. After October’s reading of 48, the Consumer Sentiment Index improved to 51 in November. Meanwhile, one-year inflation expectations moderated to 4.3% from 4.7%.

Having regained the 102.00 mark following the NFP release, the US Dollar Index (DXY) is trading above that threshold, up 0.62%. The index measures the US Dollar’s performance against a basket of six currencies.

According to the CME FedWatch Tool, the probability of a Federal Reserve (Fed) rate hike at the December meeting rose to 77% from 67% on Thursday, reflecting increasingly hawkish investor bets.

“people remain concerned about inflation at the current level,” said St. Louis Fed President Alberto Musalem. He added that inflation expectations remain anchored, attributing the current excess inflation to energy shocks and the AI buildout.

US Treasury yields nevertheless pulled back from their intraday peaks. The 10-year T-note yield stood at 4.840%, up 0.1%.

Meanwhile, the US and Iran continued negotiations, and newswires reported the possibility of an agreement. The Houthis, however, maintained their attack on Saudi Arabia.

Reports suggest that Tehran is preparing for a potential escalation even as discussions continue. Citing Israeli press reports, Al Arabiya reported that “America is planning an intensive and rapid operation against Iran to reach a nuclear agreement on better terms.”

Gold traders are also looking ahead to next week’s US inflation data, jobless claims and remarks from Fed officials.

XAU/USD Technical Outlook: Can Gold Regain $4,100 After Its Retreat?

Following Thursday’s weekly peak of $4,146, Gold has slipped below $4,100. The directional bias for XAU/USD remains uncertain, although it leans towards the downside. A reversal in the Relative Strength Index (RSI) near neutral territory points to bearish momentum. With next week’s US inflation release in focus, the precious metal is therefore expected to finish the week around familiar levels in the $4,050-$4,150 range.

A continuation of the bullish move requires the non-yielding metal to overcome the confluence of its 100-day and 50-day Simple Moving Averages (SMAs), positioned at $4,197 and $4,202, respectively. Clearing these averages would pave the way for a test of $4,300.

For sellers to take back control, Gold needs to break below 4,000. Such a breach could deepen the downtrend, bringing the November 4 daily low of $3,919 into focus as the next key support, ahead of the October 30 year-to-date low of $3,879.

Common Questions About Gold

What makes Gold an investment choice?

As both a store of value and a widely used medium of exchange, Gold has held an important place throughout human history. Beyond its lustre and use in jewellery, the precious metal is now widely regarded as a safe-haven asset, making it a favoured investment during periods of turmoil. Since it is not dependent on any particular issuer or government, Gold is also commonly viewed as a hedge against inflation and currency depreciation.

Which buyers hold the most Gold?

The largest holders of Gold are central banks. To support their currencies during turbulent periods, they typically diversify their reserves and purchase Gold, strengthening perceptions of their economies and currencies. Substantial Gold reserves can bolster confidence in a country’s solvency. According to World Gold Council data, central banks increased their reserves by 1,136 tonnes of Gold, valued at around $70 billion, in 2022. No higher annual purchase has been recorded since records began. Emerging-economy central banks, including those of China, India and Turkey, are rapidly expanding their Gold holdings.

How does Gold move relative to other assets?

Both the US Dollar and US Treasuries, major reserve and safe-haven assets, have an inverse correlation with Gold. A decline in the Dollar generally supports Gold, allowing investors and central banks to diversify their holdings during unsettled periods. The precious metal also tends to move inversely to risk assets: rising equity markets usually put pressure on Gold prices, whereas selling in riskier markets tends to support them.

Which factors influence Gold prices?

Several factors can drive Gold prices. Its safe-haven appeal means geopolitical instability or concerns about a severe recession can trigger a rapid rise. Because Gold offers no yield, lower interest rates generally support it, while a higher cost of borrowing usually weighs on the metal. Most price movements, however, hinge on the performance of the US Dollar (USD), as Gold is quoted in dollars (XAU/USD). Dollar strength tends to restrain Gold prices; a weaker Dollar, by contrast, is likely to lift them.