Gold consolidates below $4,500 as bulls look to US NFP for Fed rate cues
- Gold bulls turn cautious as the USD recovers slightly ahead of the crucial US NFP report.
- Energy-driven inflation fears underpin Fed tightening prospects and further cap bullion.
- Receding Fed hike bets and soft US bond yields cap the USD, supporting the commodity.
Gold (XAU/USD) struggles to capitalize on its strong gains registered over the past two days and consolidates below the $4,500 mark during the Asian session on Friday. The commodity, however, remains close to the weekly high, which it touched the previous day, as traders keenly await the release of the closely watched US monthly employment details. The popularly known US Nonfarm Payrolls (NFP) report will be looked upon for more cues about the Federal Reserve's (Fed) policy path amid receding bets for a rate hike in September. The outlook, in turn, will play a key role in influencing the US Dollar (USD) price dynamics and provide some meaningful impetus to the non-yielding bullion.
Gold traders eye US jobs data as Fed tone turns more hawkish
According to TD Securities, "Non-farm payrolls this Friday will be the next piece of data with keen interest for precious metals" as markets grapple with "the renewed hawkish tone from the Fed and the latest escalation in the energy market." However, the bank strikes a more constructive note beyond the immediate data risk, adding that "looking forward, we do not anticipate material downside as the landscape for precious metals has improved amid a renewed dollar debasement theme, while Fed hikes remain far from certain."
Heading into the key data release, Governor Christopher Waller stated on Thursday that he is leaning toward keeping interest rates steady at the September FOMC meeting, provided there are no surprises from upcoming inflation data. Investors responded by pushing US bond yields and the USD sharply lower, which, in turn, assisted the Gold price to build on its recovery from a four-week low touched on Wednesday. However, inflation risks stemming from higher energy prices leave the door open for a rate hike later this month. This helps the USD Index (DXY), which tracks the Greenback against a basket of currencies, bounce off a one-and-a-half-week low and cap the upside for the commodity.
In fact, crude oil prices sit near their highest levels since July 24 amid renewed US-Iran hostilities and clashes over the Strait of Hormuz. In further developments surrounding the Middle East crisis, Iran targeted US military bases in Kuwait and the United Arab Emirates (UAE) on Thursday. Meanwhile, US Vice President JD Vance said that US President Donald Trump has a series of options available at his disposal to deal with Tehran, including economic, military, diplomatic, and covert measures. Adding to this, South Korea is reportedly preparing to deploy military assets to support freedom of navigation in the strategic Strait of Hormuz and aims to dispatch them before the end of the year.
This keeps geopolitical risk premium in play, which supports crude oil prices and might continue to underpin the safe-haven USD. However, the near-term direction hinges on the highly anticipated US jobs report. Nevertheless, the XAU/USD pair, for now, seems to have stalled its recent corrective decline from the vicinity of the $4,700 mark, or the highest level since May 14, and remains on track to register modest weekly gains. That said, sustained strength and acceptance above the $4,500 round figure is needed to back the case for any meaningful appreciating move.
XAU/USD 4-hour chart
Technical Analysis
The precious metal maintains a constructive near-term tone above the 200-day Simple Moving Average (SMA) on the 4-hour chart and the 38.2% Fibonacci retracement level of the recent leg down. The Relative Strength Index (RSI) near 56 and the Moving Average Convergence Divergence (MACD) line lodged above zero with a positive histogram suggest firm but not overextended bullish momentum while the Gold presses into the nearby 50% retracement barrier ahead of $4,500.
Further up, the 61.8% level near $4,540, followed by the 78.6% retracement at $4,609 and the swing high cluster around $4,698 could be key hurdles. On the downside, initial support is seen at the 38.2% retracement at $4,442, ahead of the 23.6% level near $4,381, with the 200-period SMA at $4,322 and the structural floor around $4,283.63 reinforcing a broader bullish bias.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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