Gold prices (XAU/USD) experienced a retreat during the Asian session on Monday, breaking a four-day winning streak that had pushed the precious metal to its highest level in a month, nearing the $2,700 mark. This decline follows the release of an upbeat US Nonfarm Payrolls (NFP) report, which bolstered market expectations that the Federal Reserve (Fed) will pause its rate-cutting cycle later this month. As a result, US Treasury bond yields remain elevated, hovering near their highest levels in over a year, while the US Dollar (USD) strengthens to a two-year peak, putting pressure on the non-yielding gold.
Despite these developments, ongoing geopolitical tensions and hawkish Fed expectations are fueling risk aversion among investors. This has led to a weaker tone in equity markets, which could provide support for gold as a safe-haven asset. Nevertheless, analysts suggest waiting for more significant selling pressure before confirming a potential reversal in the recent upward movement of gold prices. Investors are also looking ahead to the release of US inflation data this week, which could offer further direction for the market.
US Jobs Data Boosts Expectations for Slower Fed Rate Cuts
The US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls increased by 256,000 in December, significantly surpassing the previous month’s gain of 212,000 and the market’s expectations of 160,000. Additionally, the Unemployment Rate unexpectedly dropped to 4.1% from 4.2%, while annual wage inflation, measured by the change in Average Hourly Earnings, eased to 3.9%.
These figures, coupled with the Fed’s hawkish shift in December, dampen hopes for aggressive interest rate cuts. As a result, US Treasury bond yields and the US Dollar have surged, with the 10-year US government bond yield reaching its highest level since late 2023, and the USD Index rising to a two-year high. These factors are acting as a headwind for gold, although the ongoing risk-off sentiment provides some support to the precious metal.
Geopolitical Tensions Contribute to Safe-Haven Demand
Further geopolitical tensions are exacerbating market uncertainty. On Friday, the US and UK imposed stricter sanctions on Russia’s oil industry, targeting nearly 200 vessels associated with Russia’s “shadow fleet.” Additionally, Russian forces have conducted strikes on Ukrainian military targets, and Israeli airstrikes have continued in Gaza and Lebanon amid renewed ceasefire talks. These events have led to an uptick in demand for safe-haven assets like gold.
Gold Price Technical Outlook
From a technical perspective, gold prices may find support near the $2,665-$2,664 range if the decline continues. A decisive break below this level could lead to further losses, with potential targets around the $2,635 region and the $2,605 level, which coincides with the 100-day Exponential Moving Average and an ascending trend-line support.
On the other hand, if gold breaks through the $2,700 resistance, the bulls may target higher levels. Oscillators on the daily chart are showing positive momentum, and gold could climb toward the $2,715 level, with further upside potential towards the $2,730-$2,732 area and the $2,746-$2,748 supply zone.
As the market awaits key inflation data, the outlook for gold remains cautiously optimistic, with a potential for further price action in response to broader economic and geopolitical developments.
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