Gold price attracts some buyers ahead of US NFP data

• Gold price trades in positive territory in Friday’s Asian session. 
• US election uncertainty and geopolitical risks underpin the Gold price, but renewed USD might cap its upside. 
• The US October Nonfarm Payrolls data will take center stage on Friday. 

The Gold price (XAU/USD) recovers some lost ground on Friday. The uncertainties surrounding the US presidential election and the ongoing geopolitical tensions in the Middle East provide some support to the precious metal, a traditional safe-haven asset. 

Nonetheless, the rising US treasury bond yields and a stronger US Dollar (USD) might weigh on the yellow metal. Traders will closely watch the US October employment report on Friday for fresh impetus, including the Nonfarm Payrolls (NFP), Unemployment Rate and Average Hourly Earnings. The stronger outcome could prompt bets for less aggressive policy easing by the Federal Reserve (Fed), exerting some selling pressure on the non-yielding yellow metal. 

Daily Digest Market Movers: Gold price rebounds ahead of highly-anticipated US NFP data

• “Gold should retain its upward bias and may even flirt with $2,800 in the days ahead, as long as US election risks continue weighing on market sentiment, while Fed rate cut expectations remain intact,” said Han Tan, chief market analyst at Exinity Group. 
• The US Personal Consumption Expenditures (PCE) Price Index, rose 2.1% on a yearly basis in September, compared to 2.2% in August. This figure came in line with market expectations. On a monthly basis, the PCE increased 0.2%, as expected. 
• The core PCE Price Index, which excludes volatile food and energy prices, jumped 2.7% in the same period, matching August's rise and above the market estimation of 2.6%. The core PCE Price Index rose 0.3% on a monthly basis, in line with the consensus.
• US Initial Jobless Claims for the week ending October 26 fell from 228K to 216K, coming in below the forecast of 230K.
• Markets are currently pricing in almost 100% odds for a 25-basis points (bps) rate cut by the Fed in the November meeting. 

Technical Analysis: Gold price remains strong in the longer term

The Gold price gains momentum on the day. The precious metal keeps a strong bullish trend on the daily timeframe as the price is well-supported above the key 100-day Exponential Moving Average (EMA). Additionally, the 14-day Relative Strength Index (RSI) stands above the 50-midline near 62.30, suggesting further upside looks favorable in the near term. 

The all-time high and psychological mark in the $2,790-$2,800 zone appears to be a tough nut to crack for Gold bulls. A decisive break above this level could result in a rally to $2,850. 

On the downside, the initial support level for the yellow metal emerges at $2,715, the low of October 24. The additional downside filter to watch is $2,624, the low of September 30. The next contention level is located at $2,600 before $2,500, the low of September 9 and round figure. 

Employment FAQs

How do employment levels affect currencies?

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

Why is wage growth important?

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

How much do central banks care about employment?

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

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