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Gold Prices Encounter Trendline Resistance

Gold Prices Encounter Trendline Resistance

Gold prices encounter trendline resistance, impacting XAU/USD. Fed’s cautious stance and rate hike potential affect the economy and markets

Gold prices have hit a roadblock as they encountered trendline resistance near the $1,950 mark. This development precedes a significant event: the release of the latest U.S. jobs report, poised to impact financial markets.

Key Economic Forecast for August

Investors and analysts closely monitor August’s total nonfarm payrolls, expecting a 170,000 increase after July’s rise of 187,000 jobs.

Technical Analysis for XAU/USD

Gold prices (XAU/USD) exhibited limited directional movement on Thursday, hovering around the $1,940 level. This lack of volatility is observed across various assets as the financial markets brace for the high-impact U.S. jobs report, scheduled for release just before the weekend.

Fed’s Cautious Stance

At the recent Jackson Hole Symposium, Federal Reserve Chair Powell highlighted persistent high inflation levels, urging heightened vigilance. However, he also signaled that the Federal Open Market Committee (FOMC) would proceed with caution regarding further policy moves, given the already significant 525 basis points of tightening implemented since 2022. This cautious approach underscores the Fed’s reliance on data.

Data-Centric Strategy and Rate Hike Possibilities

The shift towards a data-centric strategy elevates the importance of incoming economic information. The upcoming employment survey, in this context, holds great significance. A robust jobs report could influence policymakers to consider one or two additional rate hikes.

Outlook for Non-Farm Payrolls

As Friday’s event approaches, analysts are anticipating the August non-farm payrolls report to show a job increase of 170,000, which follows the previous month’s gain of 187,000 jobs. Furthermore, analysts are predicting a 0.3% monthly increase in nominal wages. This forecast would maintain the yearly reading at 4.4%, a level that is regarded as too high to support a consistent convergence of inflation towards the 2% target.

Impact of Recent Economic Indicators

Recent disappointing macroeconomic indicators, including JOLTS, consumer confidence, and private sector hiring, have contributed to uncertainty regarding the economic outlook. Should the Non-Farm Payrolls (NFP) figures confirm this trend of economic weakness, it could lead to lower interest rate expectations, putting downward pressure on yields and the U.S. dollar. Such a scenario could be bullish for gold prices.

Better-Than-Expected Results and Market Reaction

Conversely, in the event of better-than-expected NFP results, there may be limited room for a substantial rally in yields and the greenback. Traders may be cautious in fully embracing the narrative of sustained economic strength due to conflicting signals from other economic indicators.

Technical Analysis: Gold’s Path Forward

In terms of technical analysis, gold made gains in the latter part of August, reclaiming both its 200-day and 50-day simple moving averages. However, this upward momentum stalled towards the end of the month, coinciding with prices encountering short-term trendline resistance.

For a renewed bullish outlook, a clear breakthrough above the $1,950 barrier is necessary. If this unfolds, we could see a climb toward $1,985 and further progression to the psychological milestone of $2,000.

If sellers push prices lower, note the initial support levels at $1,930 and $1,912 (the 200-day simple moving average). Further down, focus on the $1,895 level, which represents the 38.2% Fibonacci retracement of the rally from September 2022 to May 2023.

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