Gold Price Forecast: XAU/USD clings to gains above $1,810, lacks follow-through ahead of NFP

Update: Gold regained positive traction on the last day of the week and reversed the overnight losses, though lacked any strong follow-through buying. Investors now seem convinced that the Fed will wait for a longer period before rolling back its massive pandemic-era stimulus. Moreover, Wednesday's disappointing ADP report raised doubts about the US labour market recovery and further dampened prospects for an early Fed liftoff. This, in turn, kept the US dollar bulls on the defensive near one-month lows and was seen as a key factor that provided a modest lift to the dollar-denominated commodity.

That said, the prevalent risk-on environment continued acting as a headwind for traditional safe-haven assets and kept a lid on any meaningful rally for gold, at least for the time being. Traders also seemed reluctant to place any aggressive bets ahead of Friday's release of the closely-watched US monthly jobs data. The popularly known NFP report could provide fresh clues about the likely timing of the Fed's tapering plan and provide a fresh directional impetus to the non-yielding gold. In the meantime, the XAU/USD is likely to prolong its range-bound price action witnessed since the beginning of this week.

Hence, it will be prudent to wait for some strong follow-through buying before positioning for any further appreciating move, back towards the $1,832-34 supply zone. A sustained move beyond will mark a fresh bullish breakout and set the stage for an extension of the recent strong bounce from the $1,686 region, or multi-month lows touched on August 9. Gold might then accelerate the momentum towards the $1,852 region en-route the next major hurdle near the $1,869-70 area.

Previous update: Gold (XAU/USD) prices step back from an intraday high surrounding $1,815, up 0.12% on a day near $1,812 heading into Friday’s European session. In doing so, the yellow metal rises the most in three days inside a bullish chart pattern ahead of the key US Nonfarm Payrolls (NFP).

Gold prices cheer upbeat market sentiment and weaker US dollar to stay firmer. That said, the US Dollar Index (DXY) refreshed monthly low in Asia before recently paring the losses to 92.20.

Firmer risk appetite could be linked to the softer catalysts for the US jobs report for August marked a soft NFP, versus 750K expected and 943K prior, pushing away the Fed tapering concerns. Also positive for the mood could be the receding hospitalization in the US and mixed numbers in Asia–Pacific, not to forget the vaccine optimism surrounding the UK.

The Initial Jobless Claims and Continuing Claims eased from the market consensus for the week ended on August 27 Thursday and the four-week average of Initial Jobless Claims also declined from 366.75K to 355K. Previously, the ADP Employment Change and the employment component of the US ISM Manufacturing PMI both signaled a contraction in the US jobs and marked the need for further easy money policies.

Additionally, talks of Japanese PM Yoshihide Suga’s resignation and the UK’s battle for the likely stringent virus-led lockdown in the future also portray the current risk appetite and underpin the EUR/USD bulls.

That said, S&P 500 Futures rise 0.20% intraday, tracking the Wall Street benchmarks that closed mildly positive on Thursday whereas the US 10-year Treasury yields drop 0.4 basis points (bps) to 1.29% by the press time.

Moving on, gold will cheer a likely weakness in the US jobs report for August as it cuts the odds of the Fed’s tapering. However, the key employment details are famous for delivering surprises and hence keep the traders on their toes. Also important will be the US ISM Services PMI for August, 61.5 forecast compared to 64.1 prior.

Read: Nonfarm Payrolls August Preview: Sine qua non for the taper

Technical analysis

Despite snapping a three-week uptrend, gold portrays a bullish flag on the four-hour chart. This joins steady RSI and sustained trading beyond the 18-day-old support line to back the buyers.

However, a clear upside break of $1,819 becomes necessary for a bullish pattern to trigger the theoretical upside move towards May’s top near $1,916.

During the rise, highs marked during July and August, surrounding $1,832-35, will be important and so do the $1,900 threshold.

On the other hand, a downside break of the immediate support line from August 10, near $1,809, will drag the quote to the flag’s lower line near $1,804.

In a case where gold prices remain weak below $1,804, the $1,800 round figure may offer an intermediate halt during the fall to 200-SMA $1,793.

Overall, gold remains in the upward trajectory but bulls need a strong trigger and hence highlight today’s US NFP.

Gold: Four-hour chart

Trend: Further upside expected