Gold Forecast: XAU/USD needs a US NFP miss to sustain the upside

Gold price consolidates near the monthly high of $2,678 on US Nonfarm Payrolls Friday.
Concerns over Trump’s policies offset the US Dollar strength and elevated Treasury bond yields.
Can US NFP data change the course in Gold price, with a Bear Cross in play?

Gold price consolidates the weekly gains just below the one-month high of $2,678 set on Thursday as traders eagerly await the US Nonfarm Payrolls (NFP) data for placing fresh bets.

All eyes turn to US NFP data for the next Gold price move

Gold price continues to draw support from increased safe-haven demand, which overshadows the persistent strength in the US Dollar (USD) and the US Treasury bond yields. Inflation fears have been stoked due to the potential impact of the incoming immigration and trade policies by US President-elect Donald Trump, boosting the appeal of Gold price as an inflation hedge and a traditional safe-haven asset.

Meanwhile, expectations of fewer interest rate cuts by the US Federal Reserve (Fed) this year and China's economic concerns keep the sentiment around the USD underpinned as the Greenback hovers near weekly highs against its major currency rivals. US benchmark 10-year Treasury bond yields sit at eight-month highs above 4.68%, somewhat limiting the upside attempts in the non-yielding Gold price.

Markets also remain risk-averse and refrain from placing any directional bets on the bright metal amid a typical pre-NFP caution. The US economy is expected to create 160K jobs in December after adding 227K jobs in November. The Unemployment Rate and the Average Hourly Earnings will likely remain steady at 4.2% and 4%, respectively, in the reported period.

A weaker-than-expected headline NFP print is likely to bring back expectations of aggressive Fed rate cuts on the table, triggering a broad US Dollar correction while adding extra legs to the ongoing Gold price uptrend. Conversely, an upside surprise in the NFP and wage inflation data could ramp up hawkish Fed bets, spelling doom for Gold price.

Further, markets could also resort to profit-taking on Gold longs ahead of next week’s US Consumer Price Index (CPI) data. However, speculations surrounding Trump’s policies could continue to drive markets, acting as a major tailwind for Gold price heading into the weekend.

Gold price technical analysis: Daily chart

The daily chart shows that the 14-day Relative Strength Index (RSI) holds comfortably above the midline, currently near 57.50, justifying the ongoing upside in Gold price. Additionally, Gold price closed Tuesday above the static resistance at $2,665.

However, buyers are likely to remain cautious as the 21-day Simple Moving Average (SMA) has crossed the 100-day SMA from above on a daily closing basis on Thursday, confirming a Bear Cross.

Amidst conflicting daily technical indicators, the US NFP report could pave the next direction in Gold price.

On a US NFP miss, Gold price could extend its four-day advance and challenge the December 13 high of $2,693 above the four-week high of $2,678.

The next upside barriers are aligned at the $2,700 round level and the December 12 high of $2,726.

Alternatively, strong payrolls could revive Gold sellers, knocking the rates toward the 50-day SMA at $2,643, below which the confluence of the 21-day SMA and the 100-day SMA at $2,633 will be tested.

The line in the sand for Gold buyers is pegged at the January 6 low of $2,615.

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

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