Gold (XAU/USD) preserved its bullish momentum and climbed to its highest level since late July above $3,400. Upcoming macroeconomic releases from the United States (US), such as business activity and employment data, could influence the market pricing of the Federal Reserve’s (Fed) policy outlook and drive XAU/USD near-term action.
Gold benefits from dovish Fed expectations, escalating geopolitical tensions
The US Dollar (USD) staged a rebound on Monday after suffering large losses against its rivals following Fed Chairman Jerome Powell’s dovish remarks at his speech at Jackson Hole on August 22. In turn, Gold found it difficult to build on the previous week’s gains at the start of the week. Nevertheless, renewed USD weakness and escalating geopolitical tensions allowed XAU/USD to gather bullish momentum.
Growing concerns over the Fed’s independence made it difficult for the USD to extend its recovery. During the Asian session on Tuesday, US President Donald Trump announced on Truth Social that he had fired Federal Reserve (Fed) Governor Lisa Cook by sharing a letter addressed to her. “I have determined that there is sufficient cause to remove you from your position,” Trump’s letter read. In a statement shared by her attorneys as a response, “President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so,” Cook said.
Meanwhile, Trump’s renewed tariff threats further supported Gold. While speaking at a cabinet meeting late Tuesday, President Trump urged China to supply the US with magnets or face tariffs of up to 200%.
In addition, Russia launched its second-biggest aerial attack since its full-scale invasion of Ukraine, reportedly killing 23 people, including four children, and damaging European Union (EU) offices on Thursday. This development dimmed market expectations for a Russia-Ukraine peace agreement, allowing Gold to capitalize on safe-haven flows.
Later on Thursday, the US Bureau of Economic Analysis (BEA) announced that it revised the annualized Gross Domestic Product (GDP) growth for the second quarter to 3.3% from 3% in the initial estimate. The USD found support late Thursday and capped XAU/USD’s upside in the first half of the day on Friday.
The last important data release of the week from the US showed that annual inflation in the US, as measured by the change in the Personal Consumption Expenditures (PCE) Price Index, held steady at 2.6% in July. The core PCE Price Index, which excludes volatile food and energy prices, rose 2.9% in the same period, following June’s increase of 2.8% and matching analysts’ estimate. These figures failed to trigger a noticeable market reaction and Gold continued to stretch higher in the American session on Friday.
Following Monday’s choppy action, XAU/USD registered gains for four consecutive days and reached its highest level since July 23 above $3,430.
Gold investors shift focus to US PMI, NFP data
Financial markets in the US will remain closed in observance of the Labor Day holiday on Monday. On Tuesday, the Institute for Supply Management (ISM) will publish the Manufacturing Purchasing Managers’ Index (PMI) data. The headline PMI is forecast to improve slightly to 48.6 in August from 48 in July. A reading above 50 could support the USD and weigh on XAU/USD with the immediate reaction.
On Thursday, ADP Employment Change and ISM Services PMI will be featured in the US economic calendar. The market reaction to these releases could be straightforward and remain short-lived, with investors refraining from taking large positions ahead of Friday’s critical employment report.
According to the CME FedWatch Tool, markets are currently pricing in a nearly 85% probability of 25 basis points (bps) Fed rate cut in September. This market positioning suggests that the USD doesn’t have a lot of room left on the downside, even if a disappointing Nonfarm Payrolls (NFP) print for August reaffirms a Fed rate cut in September. Nevertheless, investors could assess weak NFP data as a factor that could pave the way for multiple Fed rate cuts in the last quarter of the year. The CME FedWatch Tool shows that there is a less-than-40% chance of three 25 bps Fed rate cuts in 2025. Hence, the USD could come under persistent selling pressure even though a September rate cut is largely priced in.
Conversely, a stronger-than-expected NFP growth, combined with an unchanged Unemployment Rate of 4.2%, could cause market participants to lean toward two rate cuts this year, allowing the USD to outperform its rivals and triggering a bearish action in XAU/USD heading into the weekend.
In the meantime, market participants will continue to assess the geopolitical developments. In case tensions between Russia and Ukraine remain high, Gold could hold its ground at least until the US employment report becomes the primary market driver.
Gold technical analysis
The Relative Strength Index (RSI) indicator on the daily chart climbed above 60, and Gold continued to pull away from the 20-day, 50-day and 100-day Simple Moving Averages (SMAs), highlighting a bullish bias.
On the upside, $3,450 (static level) aligns as an interim resistance before $3,500 (record high). In case Gold rises above that level and starts using it as support, $3,600 (round level) could be seen as the next hurdle.
Looking south, the first support area could be spotted at $3,345-$3,335 (50-day SMA, 100-day SMA) ahead of $3,285 (Fibonacci 23.6% retracement of the January-June uptrend) and $3,200 (static level, round level).
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation.
A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work.
The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower.
NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa.
Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold.
Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components.
At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary.
The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.