Gold prices fell on rising US Treasury yields and a stronger dollar.
US stock market declines and job market concerns add to market jitters ahead of non-farm payrolls report.
Fed's Goolsbee suggests cautious monetary policy, weighing on gold prices amid global trade tensions.
Gold gains stalled on Thursday as US Treasury yields rebounded and the dollar held modest gains. Traders appeared to book profits ahead of the latest US non-farm payrolls report, which could spark volatility in financial markets. Gold/USD traded at $2,852, down 0.38%.
US stock indices moved lower as sentiment turned negative in the absence of a clear catalyst. Still, the non-yielding asset continued to trim some of its weekly gains as tensions escalated amid the U.S.-China trade war.
Elsewhere, U.S. employment data indicated an increase in the number of people applying for unemployment benefits in the week ended Feb. 1, the Labor Department revealed. A Bloomberg report said the report was largely overlooked due to distortions triggered by wildfires in Los Angeles and severe weather in other parts of the country.
Gold prices failed to gain momentum despite dovish comments from Chicago Fed President Austan Goolsbee. He said the Fed was ready for an eventual rate cut, but added that uncertainty over Washington's policy calls for a "slower approach."
The dollar index (DXY), which measures the greenback's performance against six currencies, edged up 0.06% to 107.68.
The US 10-year Treasury yield rose one and a half basis points to 4.44%.
US real yields, which move inversely to gold prices, rose one and a half basis points to 2.0026% from 2.01%, creating a tailwind for gold/dollar.
US initial jobless claims increased to 219K in the week ended February 1, up from 208K the previous week and beating expectations of 213K. This suggests that more Americans are applying for unemployment benefits than expected.
US nonfarm payrolls are expected to fall from 256K to 170K in January. The unemployment rate is expected to remain unchanged at 4.1%.
Money market Fed Funds futures are pricing in a 47.5 basis points (bps) rate cut by the Fed in 2025.
Despite the decline, the pair is expected to extend its rally and challenge the year’s high at $2,882, followed by $2,890. Once both levels are broken, the next resistance will be $2,900.
The Relative Strength Index (RSI) remains in overbought territory. However, as mentioned earlier, “it has not yet reached the most extreme levels above 80, which could pave the way for a mean reversion trade.”
As a result, the pair fell to a daily low of $2,834, but buyers pushed the price above $2,850, opening up further upside.
Conversely, if gold falls below $2,800, immediate support will be the Jan. 27 swing low of $2,730, followed by $2,700.
Gold has played a key role in human history as it is widely used as a store of value and medium of exchange. Currently, in addition to its lustre and use in jewellery, gold is widely viewed as a safe haven asset, meaning it is considered a good investment in turbulent times. Gold is also widely viewed as a hedge against inflation and currency debasement because it is not tied to any particular issuer or government.
Central banks are the largest holders of gold. To support their currencies during turbulent times, central banks tend to diversify their reserves and buy gold to boost perceptions of economic and monetary strength. High gold reserves can be a source of trust in a country's solvency. According to the World Gold Council, central banks added 1,136 tons of gold reserves in 2022, worth about $70 billion. This is the highest annual purchase on record. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold is negatively correlated with the U.S. dollar and U.S. Treasuries, both of which are major reserve assets and safe havens. Gold tends to rise when the dollar depreciates, allowing investors and central banks to diversify their assets during turbulent times. Gold is also negatively correlated with risky assets. A rebound in the stock market tends to push gold prices lower, while a sell-off in riskier markets tends to favor gold.
Prices can move due to a wide variety of factors. Geopolitical instability or fears of a deep recession can quickly push gold prices higher due to its safe-haven status. As a low-yielding asset, gold tends to rise as interest rates fall, while higher funding costs usually weigh on gold. Still, since the asset is priced in U.S. dollars (XAU/USD), most moves depend on the performance of the U.S. dollar (USD). A strong dollar tends to control gold prices, while a weak dollar can push them higher.