The price of gold (XAU/USD) rose over 3% on Friday and is poised for a decent weekly gain as buyers emerge from the dip after a session that pushed the yellow metal below the $4,800 level. Notably, Friday’s session was volatile, with the unprofitable metal falling to a three-day low of $4,655 before paring previous losses. At the time of writing, the XAU/USD rate is USD 4,963.
XAU/USD rebounds sharply towards $4,950 as delicate US labor market data revives Fed’s monetary easing forecast
Since Thursday, the unyielding metal has enjoyed a solid rebound. The initial dollar weakness on Friday reflected worse-than-expected US labor market data on Thursday, which fueled speculation about further easing of monetary policy by the Federal Reserve (Fed). That prompted traders to buy dips in the bullion market even as U.S. Treasury yields showed signs of life.
The data front was unclear as the January release of nonfarm payrolls data was delayed to February 11 due to the US government shutdown. U.S. consumer sentiment has improved, according to a University of Michigan (UoM) study, which should be taken with a pinch of salt because it found that “sentiment among consumers with the largest stock holdings has improved, while that of consumers without stocks has remained stable and dismal,” said Joanne Hsu, director of the study.
On the geopolitical front, US-Iranian talks have started in Oman and both sides have agreed to continue them. Despite this, it is said that Iran did not agree to stop enriching nuclear weapons in talks with the US, as revealed by The Wall Street Journal.
In the coming week, information on the situation on the US labor market, retail sales and the Consumer Price Index (CPI) will be published. Traders would also analyze the speeches of an entire group of Federal Reserve officials.
Daily summary of market changes: Gold strengthened by softer than expected data from the US
- The US Dollar Index (DXY), which measures the dollar’s value against a basket of six currencies, is down 0.35% at the time of writing. DXY is at 97.49 after failing to clear the 98.00 level, representing a tailwind for gold prices.
- Meanwhile, U.S. Treasury yields – which tend to correlate negatively with Bullion value – rise with XAU. U.S. 10-year Treasuries rose almost three basis points to 4.216%.
- San Francisco Fed President Mary Daly said both sides of the Fed’s mandate need to be looked at. She reiterated that the low-hiring, low-employment policy could persist for some time, but said it could quickly shift to a hiring ban and more layoffs in a scenario of inflation remaining above the Fed’s 2% target.
- The decline in job openings, the enhance in layoffs noted in the Challenger Report, and the rise in jobless claims have reinforced expectations that the Federal Reserve will cut interest rates in 2026.
- Meanwhile, the University of Michigan’s February consumer sentiment index improved to 57.3 from 56.4, topping forecasts of 55. One-year inflation expectations fell to 3.5% from 4.0%, while five-year expectations rose slightly to 3.4% from 3.3%.
- According to them, money markets are pricing in 54 basis points of monetary policy easing by the Fed by the end of the year Main Square Terminal data.
Technical Outlook: Gold is gaining again, we expect $5,000
The uptrend in the gold price remains unchanged after it fell below the 20-day uncomplicated moving average (SMA) of $4,861. Since testing three-day lows at $4,655, the precious metal has not looked back and appears ready for the $5,000 challenge.
Bullish momentum is gaining momentum after the relative strength index (RSI) fell below neutral on Tuesday. However, it has rebounded and is heading upwards into bullish territory.
Conversely, if gold falls below $4,900, it could consolidate within the 20-day SMA at $4,861 and $4,900 before next week.
Gold FAQs
Gold has played a key role in human history as it has been widely used as a store of value and a medium of exchange. Nowadays, beyond its luster and apply in jewelry, the precious metal is widely viewed as a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation because it is not tied to any particular issuer or government.
Central banks are the largest holders of gold. To support their currencies in turbulent times, central banks typically diversify their reserves and purchase gold to improve the perceived strength of the economy and currency. High gold reserves may provide a source of confidence in the country’s solvency. According to data from the World Gold Council, central banks added 1,136 tons of gold to their reserves in 2022, worth about $70 billion. This is the highest annual purchase since registration began. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US dollar and US treasury bonds, which are both major reserve assets and safe and sound haven assets. When the dollar depreciates, gold tends to rise, allowing investors and central banks to diversify their holdings in turbulent times. Gold is also inversely correlated with risky assets. A rally in the stock market tends to weaken the price of gold, while sell-offs in riskier markets favor the precious metal.
The price may change due to many factors. Geopolitical instability or fear of a deep recession can quickly cause gold prices to rise due to its safe-haven status. Gold, as a non-yielding asset, tends to rise at lower interest rates, while the higher cost of money tends to weigh on the yellow metal. Still, most of the movements depend on the behavior of the US dollar (USD) when the asset is priced in dollars (XAU/USD). A robust dollar tends to keep the gold price in check, while a weaker dollar will likely cause gold prices to rise.
