Will US Job Data Serve to Deepen XAU/USD’s Bearish Trend?

GOLD PRICE OUTLOOK:

• Gold prices traded slightly higher on Wednesday on U.S. dollar softness ahead of key U.S. economic data.
• The September U.S. employment report will steal the spotlight on Friday and will be key for financial markets.
• This article looks at XAU/USD’s key technical levels worth watching in the coming days.

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Gold prices (XAU/USD) moved slightly higher on Wednesday amid U.S. dollar softness but lacked firm directional conviction, as traders remained somewhat bearish on precious metals and avoided taking significant exposure in the space given the recent unhinged moves in yields. In this context, bullion was up about 0.15% to $1,823 in early afternoon trading in New York ahead of key data later in the week.

The U.S. Bureau of Labor Statistics is set to unveil the September nonfarm payrolls survey on Friday. According to consensus estimates, U.S. employers added 170,000 jobs last month, after hiring 187,000 people in July. With this result, the unemployment rate is seen ticking down to 3.7% from 3.8% previously, indicating a persistent imbalance between the supply and demand for workers.

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UPCOMING US DATA

Source: DailyFX Economic Calendar

If labor market data surprises to the upside, yields are likely to continue their upward path. This is predicated on the assumption that economic resilience may compel policymakers to deliver another quarter-point hike this year and to keep interest rates high for longer to safeguard price stability. In this scenario, the 10-year nominal note could edge closer to 5.0%, and the 10-year TIPS may exceed 2.50%. The U.S. dollar, meanwhile, could vault to fresh multi-month highs, weighing on both gold and silver.

The chart below, with gold depicted on an inverted scale, visually represents how bullion has trended downward as the U.S. 10-year real yield has broken out on the topside, reflecting a strong inverse correlation between both instruments.

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GOLD PRICES VERSUS 10-YEAR US REAL YIELDS

Source: TradingView

GOLD PRICE TECHNICAL ANALYSIS

After its recent pullback, gold appears to be hovering around an important support zone near $1,810, where the lower boundary of a short-term descending channel aligns with the swing lows recorded in February and March. The preservation of this critical technical support is paramount; any failure to do so may result in XAU/USD tumbling towards $1,789, the 61.8% Fib retracement of the Sep 2022/May 2023 advance.

On the flip side, if gold manages to stabilize around current levels and begins to rebound, initial resistance is positioned at $1,855. Although bulls may find it difficult to drive prices above this barrier decisively, a topside breakout could reignite bullish momentum and set the stage for a move toward $1,895. On further strength, the focus shifts to $1,930.

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GOLD PRICE TECHNICAL CHART

Gold Price Chart Created Using TradingView