Gold (XAU) Price Forecast: Key U.S. Payrolls Report to Determine Gold’s Next Move

Gold Prices Edge Lower as Traders Eye Key U.S. Labor Data

Gold prices are inching lower on Tuesday, extending losses from the previous two sessions where the metal fell nearly 1%. This retreat is largely driven by profit-taking ahead of crucial U.S. labor market data expected later in the week, which traders anticipate will provide guidance on the Federal Reserve’s impending interest rate decision. The combination of a stronger U.S. Dollar and firm Treasury yields also exerted downward pressure on gold prices.

At 11:06 GMT, XAU/USD is trading $2499.09, down $0.34 or -0.01%.

Market Anticipates Fed Rate Cuts

The gold market is currently in a state of uncertainty as traders debate the Federal Reserve’s rate cut strategy. The central question is whether the Fed will opt for a 25 basis points (bps) or 50 bps rate cut during its upcoming September 17-18 policy meeting. According to the CME FedWatch Tool, there is a 69% probability of a quarter-point cut and a 31% chance of a 50 bps reduction. This speculation is influencing gold traders, as lower interest rates generally boost gold’s appeal by reducing the opportunity cost of holding non-yielding assets.

U.S. Dollar and Treasury Yields Cap Gold’s Upside

Adding to the downward pressure on gold, the U.S. Dollar remained strong, hovering near a two-week high at 101.68, while Treasury yields held firm as markets reopened after the Labor Day holiday. The resilience of the dollar, supported by expectations of a Federal Reserve rate cut, has made gold less attractive to investors. This week’s economic data, including the ISM surveys, JOLTS job openings, and ADP employment reports, will be closely watched for further signals regarding the Fed’s monetary policy path.

Focus Shifts to U.S. Payrolls Report

Investor attention is now focused on Friday’s U.S. nonfarm payrolls report, which is expected to be a critical determinant of the Fed’s rate decision. Economists surveyed by Reuters predict an increase of 165,000 jobs in August, up from 114,000 in July. A strong report could reinforce the likelihood of a modest 25 bps cut, while weaker-than-expected data, particularly if nonfarm payrolls fall below 130,000 or if the unemployment rate rises again, could push the market towards expecting a more substantial 50 bps cut.

Market Forecast: Cautious Bearish Outlook

Given the current market conditions, the near-term outlook for gold appears cautiously bearish. The stronger dollar, steady Treasury yields, and uncertainty surrounding the Fed’s rate cut decision are likely to continue weighing on gold prices. However, any significant downside surprise in the upcoming U.S. labor data could shift the market sentiment, potentially leading to a rebound in gold prices. Traders should remain vigilant as the week progresses, with a close eye on the key economic indicators that will shape the Fed’s policy and, in turn, the trend of gold prices.

Technical Analysis

XAU/USD is trading on the weak side of a minor pivot at $2501.31. This pivot has been controlling the direction of the market since August 22.

A sustained move over $2501.31 will indicate that traders may have bought today’s earlier dip to $2489.71. Building a support base on the strong side of the pivot could lead to higher near-term prices.

Meanwhile, a sustained move under $2501.31 will signal the presence of sellers. This could extend the selling into another pivot at $2482.00, followed by a main bottom at $2470.85. Look for a sharp break if this bottom fails to hold with $2442.48 the first target price.