Gold snakes sideways prior to US Nonfarm Payrolls

• Gold adopts a sideways mode as traders await the US Nonfarm Payrolls report for fresh clues on the trajectory of Fed policy. 
• A weak figure would reignite speculation of the Fed enacting a 50 bps rate cut in November – driving Gold higher.
• Technically, XAU/USD is consolidating in a medium and long-term uptrend.  

Gold (XAU/USD) continues trading sideways in the $2,660s on Friday as traders brace for the release of what is likely to be the most significant macroeconomic data report of the week, the US Nonfarm Payrolls (NFP) for September published by the US Bureau of Labor Statistics (BLS). 

The report will help clarify the state of the US labor market, which took over from inflation as the chief concern of the US Federal Reserve (Fed) in August after a pivotal speech by Fed Chairman Jerome Powell, in which he stated: “We do not seek or welcome further cooling in labor market conditions.” 

If the report shows the US labor market has worsened – particularly a rise in unemployment – it could bring back on the table the probability of the Fed making another double-dose 50 basis points (bps) (0.50%) rate cut at their November meeting. This, in turn, would likely spur Gold higher since lower interest rates increase its attractiveness as a non-interest-paying asset.  

Gold: Next move probably dependent on US NFP report

Gold’s upside could be capped, however, if the NFP data reveals a healthy labor market, as this would likely further reduce the chances of a 50 bps rate cut by the Fed at their next meeting. Relatively robust US macro data has whittled away at the market-based probabilities of a “jumbo” rate cut from 60% at one point last week to just over 30% at the time of publication on Friday, according to the CME Fedwatch tool. 

On Thursday, the latest release – the US ISM Services PMI, a survey of the sector’s purchasing managers – showed a higher-than-expected expansion of activity in September. That said, a steady decline in inflation, as well as some cooling in the labor market, makes a lesser 25 bps (0.25%) cut almost certain and limits any downside for the precious metal. 

Consensus expectations for the NFP headline figure of 140K belie a wide variation in estimates – from Citibank’s 70K, to 220K at the upper end, according to Bloomberg News. This suggests the market will remain on edge until the release, and the final figure could cause volatility. 

Gold keeps the upside on safe-haven demand

Gold sees further support from safe-haven flows due to concerns about an escalation of the conflict in the Middle East. Israel is widely expected to launch an imminent retaliatory attack on Iran for its bombardment on Tuesday evening. Iran launched around 200 missiles, many of them ballistic, to avenge the death of Hassan Nasrallah, the head of the Iran-backed group Hezbollah. 

The yellow metal is further supported by the overall trend lower in global interest rates, which enables Gold to retain its attractiveness as a portfolio asset for investors. 

Technical Analysis: Gold extends sideways mode

Gold extends and narrows its sideways market mode further, clearly visible on the 4-hour chart below. It has decisively broken below the 50-period Simple Moving Average (SMA), suggesting a marginally bearish tilt to the short-term outlook.

The immediate range has narrowed to a new ceiling of $2,673 (October 1 high) and a floor of $2.638 (October 3 low). 

The short-term trend is sideways, and given the technical analysis principle that “the trend is your friend,” it is more likely than not to endure with price oscillating between poles. 

It would require a breakout either above the top of the range or below the bottom to confirm a new directional bias. This is possible, given the event risk on the horizon.

XAU/USD 4-hour Chart

A break above $2,673 would increase the odds of a resumption of the old uptrend, probably leading to a continuation up to the round-number target at $2,700. 

A break below $2.638 would lead to a move down to at least the swing low of $2,625 (September 30 low). A break below that would likely see prices give way to support at $2,600 (August 20 high, round number). 

On a medium and long-term basis, Gold remains in an uptrend, with the odds favoring an eventual resumption higher once the current period of consolidation has ended.