Gold Weekly Forecast: Bulls continue to defend $2,500 as focus shifts to US jobs data

• Gold stabilized above $2,500 after testing that level earlier in the week.
• The technical outlook shows XAU/USD’s bullish bias remains unchanged in the near term.
• Key US data releases, including Nonfarm Payrolls, could trigger the next big move in Gold.

Following a quiet start to the week, Gold (XAU/USD) briefly dipped below $2,500 on a broad US Dollar (USD) recovery. Although the precious metal struggled to gather bullish momentum, it managed to stabilize above $2,500 ahead of next week’s key macroeconomic data releases from the US.  

Gold stays within touching distance of all-time highs

After ending the previous week on a bullish note on Federal Reserve (Fed) Chairman Jerome Powell’s dovish remarks at the Jackson Hole Economic Symposium, Gold registered small gains on Monday and Tuesday. In the absence of fundamental drivers, however, the yellow metal’s upside remained limited. 

The renewed US Dollar (USD) strength caused Gold to turn south midweek. The negative shift seen in the markets’ risk mood in anticipation of Nvidia’s quarterly earnings helped the USD find demand as a safe haven, dragging XAU/USD slightly below $2,500. Nevertheless, the pair staged a rebound late in the American session and closed the day above this level.

Upbeat macroeconomic data releases from the US helped the USD hold its ground on Thursday. The Bureau of Economic Analysis (BEA) announced that it revised the annualized Gross Domestic Product (GDP) growth for the second quarter higher to 3%, from 2.8% in the previous estimate. Additionally, there were 231,000 first-time applications for unemployment benefits in the week ending August 24, down slightly from 233,000 in the previous week, the Department of Labor reported. Technical Gold sellers stood on the sidelines as $2,500 proved to be a strong support, allowing XAU/USD to ignore the ongoing USD recovery.

In the meantime, soft inflation data from Germany caused the Euro (EUR) to weaken against its rivals on Thursday. XAU/EUR gained over 1% on the same day, suggesting that Gold captured capital outflows out of the Euro.

Inflation in the US, as measured by the change in the Personal Consumption Expenditures (PCE) Price Index, held steady at 2.5% on a yearly basis in July, the BEA reported on Friday. The core PCE Price Index, which excludes volatile food and energy prices, rose 2.6% in the same period, matching June's increase and coming in below the market forecast of 2.7%. The core PCE Price Index rose 0.2% on a monthly basis, as anticipated. These figures failed to influence the trading action and Gold remained within its daily range above $2,500 heading into the weekend. 

Gold investors await US labor market data

Financial markets in the US will remain closed in observance of the Labor Day holiday on Monday. On Tuesday, the ISM Manufacturing Purchasing Managers Index (PMI) for August will be featured in the US economic docket. Investors expect the headline PMI to edge higher to 47.8 from 46.8 in July. A reading above 50, which would suggest that the business activity in the manufacturing sector recovered back into the expansion territory, could provide a boost to the USD with the immediate reaction and weigh on XAU/USD.

On Thursday, the ADP Employment Change and the ISM Services PMI data from the US will be looked upon for fresh impetus. The market reaction to these data is likely to be straightforward and short-lasting, with positive surprises supporting the USD and negative prints hurting the currency, ahead of Friday’s highly-anticipated August jobs report. 

Nonfarm Payrolls (NFP) in the US are forecast to rise by 163,000 in August following July’s disappointing 114,000 increase. The Unemployment Rate is expected to tick down to 4.2% from 4.3% and the monthly wage inflation, as measured by the change in the Average Hourly Earnings, is seen rising 0.3%.

While speaking at the Jackson Hole Economic Symposium, Fed Chairman Powell said they will do everything they can to support a strong labor market, while making further progress toward price stability. Similarly, “we want the labor market to stay about where it is, we need to adjust the policy rate to keep it there,” San Francisco Fed President Mary Daly noted earlier in the week.

Fed policymakers made it clear following the July policy meeting that they are shifting their focus to the labor market on growing signs of worsening conditions. Hence, even a small divergence from the market consensus in the NFP reading could trigger a big reaction in Gold. A better-than-forecast print could cause investors to refrain from pricing in an aggressive Fed policy loosening and fuel a strong rebound in the USD, weighing on Gold. According to the CME FedWatch Tool, markets currently see a nearly 70% probability of the Fed lowering the policy rate by a total of at least 100 basis points by year-end. On the other hand, a second straight weak NFP print could open the door for another leg lower in the US Treasury bond yields and the USD, allowing XAU/USD to push higher heading into the weekend.

Commerzbank’s commodity strategist Carsten Fritsch argued in a recently published report that Gold doesn’t have a significant upside potential in the near term:

“According to Bloomberg, Gold ETF holdings rose by 15 tonnes last week to the highest level in six months. Speculative interest is particularly strong. The net long position of speculative investors rose to around 193,000 contracts in the week to August 20th, at the same time as Gold hit an all-time high, its highest level in almost four and a half years,” Fritsch said.

“Much of the positive news for Gold may therefore already have been priced in. We feel vindicated in our view that Gold has no significant upside potential for the time being. We see more room for the three other precious metals that have not caught up with Gold in recent weeks,” he added.

Gold technical outlook

Gold’s short-term technical outlook suggests that the bullish bias remains intact. The Relative Strength Index (RSI) indicator on the daily chart stays near 60 and XAU/USD continues to trade within the upper range of the ascending regression channel coming from mid-February.

Immediate support is located in the $2,500-$2,490 area (psychological level, mid-point of the ascending regression channel) before $2,475, where the 20-period Simple Moving Average aligns. A daily close below the latter could open the door for an extended slide toward $2,420 (50-day SMA).

On the upside, static resistance seems to have formed at $2,530. Once Gold rises above this level and confirms it as support, it could target the upper limit of the ascending channel at $2,600.