$4,100: gold plunges below threshold as blockbuster NFP bolsters Fed hike odds

$4,060: Gold slides nearly 1% from a $4,106 peak.
165K US payroll gain beats the 65K forecast; Unemployment eases to 4.1%.
77% odds of a December Fed rate rise as the US Dollar regains 102.00.

Gold is down nearly 1% on Friday. After reaching $4,106, the metal has slipped as a much stronger-than-expected US employment report raised the likelihood of a Federal Reserve (Fed) rate increase at its December meeting. At the time of writing, XAU/USD is trading at $4,060.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

165K US payroll gain reverses XAU/USD advance; next week’s US CPI in focus

October Nonfarm Payrolls (NFP) rose by 165K, well above the 65K forecast, while investors bought the dip in US equities and sentiment stayed positive. The previous month’s payroll gain was also revised higher, from 29K to 60K. With employers hiring across a broad range of sectors, the Unemployment Rate consequently eased to 4.1% from 4.2%.

Despite volatile energy prices, the economy remains resilient, as indicated by the US employment figures and an encouraging University of Michigan US Consumer Sentiment report. The Consumer Sentiment Index rose modestly to 51 in November from 48 in October. One-year inflation expectations, meanwhile, eased to 4.3% from 4.7%.

Having regained the 102.00 level following the NFP release, the US Dollar Index (DXY) is trading above that threshold, up 0.62%. The index measures the US currency against a basket of six currencies.

According to the CME FedWatch Tool, the probability of a Federal Reserve (Fed) rate increase at the December meeting climbed to 77% from 67% on Thursday, reflecting investors’ increased hawkish bets.

“people remain concerned about inflation at the current level,” St. Louis Fed President Alberto Musalem said. He added that inflation expectations remain anchored, attributing current excess inflation to energy shocks and the AI buildout.

US Treasury yields nevertheless pulled back from their intraday peaks. The 10-year T-note yield stood at 4.840%, up 0.1%.

Meanwhile, US-Iran negotiations remained under way, and newswires reported the possibility of an agreement. The Houthis, however, continued their attack on Saudi Arabia.

Reports suggest Tehran is preparing for a potential escalation even as talks continue. Citing Israeli press, Al Arabiya reported that “America is planning an intensive and rapid operation against Iran to reach a nuclear agreement on better terms.”

Gold traders are also watching next week’s US inflation releases, jobless claims and remarks from Fed officials.

$4,100 proves difficult for Gold: XAU/USD technical outlook

Thursday’s weekly high of $4,146 has given way to a retreat below $4,100 in XAU/USD. The directional bias is still unclear, although it leans lower. A reversal in the Relative Strength Index (RSI) near its neutral level signals that momentum has turned bearish. With attention turning to next week’s US inflation figures, Gold is therefore expected to finish the week around familiar levels in the $4,050-$4,150 range.

A resumption of the bullish move requires the non-yielding metal to overcome the confluence of its 100-day and 50-day Simple Moving Averages (SMAs), at $4,197 and $4,202, respectively. Clearing those levels would pave the way for a test of $4,300.

For sellers to retake control, Gold needs to break below 4,000. Such a breach could intensify the decline. The next major support lies at $3,919, the November 4 daily low, ahead of $3,879, the year-to-date low recorded on October 30.

Gold: key questions answered

What attracts investors to Gold?

Widely used to preserve value and facilitate exchange, Gold has held an important place throughout human history. Beyond its lustre and use in jewellery, the precious metal is now widely regarded as a safe-haven asset: an investment considered attractive during periods of turbulence. Its independence from any particular issuer or government also underpins its widespread use as a hedge against inflation and currency depreciation.

Which buyers hold the most Gold?

The largest holders of Gold are central banks. To support their currencies during turbulent periods, they typically diversify reserves and purchase Gold, reinforcing perceptions of economic and currency strength. Substantial Gold reserves can bolster confidence in a country’s solvency. World Gold Council data show that central banks expanded their reserves by 1,136 tonnes in 2022, worth around $70 billion. That marked the largest annual purchase since records began. Emerging-economy central banks, including those of China, India and Turkey, are rapidly building their Gold reserves.

How does Gold move relative to other assets?

Both the US Dollar and US Treasuries are major reserve and safe-haven assets, and Gold is inversely correlated with them. A weaker Dollar typically supports Gold, allowing investors and central banks to diversify their holdings during turbulent periods. Risk assets also have an inverse relationship with Gold. Stock-market gains generally weigh on the metal, whereas selling in riskier markets tends to support its price.

Which factors drive Gold prices?

Many factors influence Gold prices. Its safe-haven appeal means geopolitical instability or concern about a deep recession can trigger rapid gains. Since Gold pays no yield, lower interest rates tend to support it, while higher borrowing costs usually put pressure on the metal. Most price movements, however, hinge on the US Dollar (USD), because Gold is quoted in dollars (XAU/USD). Dollar strength tends to restrain Gold prices; a weaker US currency is more likely to lift them.