Gold trades volatile after US Nonfarm Payrolls

• Gold extends its recovery after the release of more weak jobs’ data out of the US. 
• The data increases the chance of the Federal Reserve lowering interest rates aggressively – a plus for Gold.  
• US Nonfarm Payrolls fell below the previous month and estimates, whilst July's data was considerably revised down.      

Gold (XAU/USD) trades in a familiar range, exchanging hands in the $2,510s on Friday after extending its rebound following the release of more weak jobs’ data from the US, this time in the form of Nonfarm Payrolls for August, which showed a greater-than-expected slowdown in hiring. 

Nonfarm Payrolls (NFP) in the US rose by 142,000 in August, the US Bureau of Labor Statistics (BLS) reported on Friday. This reading followed the 89,000 increase (revised from 114,000) recorded in July and fell short of the market expectation of 160,000.

Gold extends recovery rally but upside could be capped

Gold rose back to within a few points of its $2,531 all-time-highs immediately after the release, and the US Dollar (USD) fell on the news, however, Gold gave up its gains as traders digested the full report and its implications. 

Upside for the precious metal will likely be capped by some positive data points in the NFP report. 

The Unemployment Rate, for example, fell to 4.2% from 4.3%, as expected. 

Average Hourly Earnings rose by 0.4% MoM, although the previous month was revised down to a negative 0.1% (from 0.2%). Nevertheless, the result beat expectations of a  0.3% rise. This translated into a 2.8% gain YoY which was higher than the 2.6% of July and expectations of 2.7%. The inflationary earnings figures may impact Fed rate-cut expectations. 

Average Weekly Hours and the Labor Force Participation Rate, meanwhile, remained unchanged from the previous month. 

According to the CME FedWatch tool, the market-based probabilities for a 0.50% rate cut from the Federal Reserve (Fed) at its September 18 meeting moderated down to 37% from being marginally above 40% prior to the release.   

On the geopolitical front, meanwhile, US negotiators claim to be 90% close to agreeing on a ceasefire deal between Israel and Hamas, according to Bloomberg News. If they are successful, it may reduce safe-haven flows to Gold. 

In Ukraine, Russia continues its advance towards the key strategic hub city of Pokrovsk. If successful, it could dramatically impact the war on the eastern front and threaten Ukraine’s whole defensive line in the Donbass. Such an outcome, though still unlikely to occur soon, would nevertheless ratchet up tensions in the region and increase demand for Gold. The Central Bank of Poland (NBP), for example, has been hoarding Gold since the war began, according to data from the World Gold Council (WGC). 

Technical Analysis: Hammer candlestick followed by up day confirms bullish bias

Gold (XAU/USD) posted two bullish-looking Japanese Hammer candlesticks in a row (box on the chart below) on Tuesday and Wednesday, and with Thursday ending as a solid green-up day, the pattern also gained bullish confirmation. The pattern suggests the odds favor more upside in the very short term.

XAU/USD Daily Chart

The yellow metal’s price looks poised to rebound to the $2,531 all-time high if it can keep up the bullish recovery momentum. 

An upside target for Gold, which has not yet been reached, sits at $2,550 and remains active. The target was generated after the original breakout from the July-August range on August 14. 

Gold’s medium and long-term trends also remain bullish, which, given “the trend is your friend,” means the odds still favor an eventual breakout higher materializing. 

A break above the August 20 all-time high of $2,531 would provide more confirmation of a continuation higher toward the $2,550 target.  

If Gold continues steadily weakening, however, it is likely to find the next support in the $2,470-$2,460 region. A decisive break below that level would change the picture for Gold and suggest that the commodity might be starting a more pronounced downtrend.