XAG/USD bulls expect sustained move beyond 200-DMA, NFP in focus

  • Hawkish BoE and ECB prompted some intraday selling around gold on Thursday.
  • The weaker USD and a sharp decline in US stock markets helped reverse the initial slide.
  • Investors are expecting fresh impetus from the monthly US labor market report (NFP).

Gold saw good price action in both directions on Thursday, eventually ending with only modest losses, breaking three straight days of winning streak. The intraday tick down was fueled by a sharp rise in global bond yields, tending to drive flows away from the unprofitable yellow metal. Both the Bank of England and the European Central Bank took a more hawkish stance to combat persistently high inflation. This comes after the Fed last week signaled an eventual rally in March, which in turn triggered a sell-off in bond markets.

Indeed, as expected, the BoE raised interest rates by 25 basis points, while the vote split showed that four MPC members supported an aggressive 50 basis point hike in borrowing costs. Separately, ECB President Christine Lagarde acknowledged rising inflationary risks and did not reiterate earlier forecasts that a rate hike this year was extremely unlikely. XAU/USD slipped below $1,790 after the BoE and ECB announced their policy decisions, although a combination of factors helped limit losses and attracted fresh buying at lower levels.

The post-BoE/ECB recovery in European currencies weighed heavily on the US dollar and provided some support for the dollar-denominated commodity. That being said, a sharp decline in US stock markets favored the safe-haven bullion, pushing spot prices back above $1,800. The commodity held above the mentioned level during Friday’s Asian session and was last seen near the top of its weekly trading range. Market participants now look forward to the monthly US jobs report (NFP), which is due later during the early North American session for fresh impetus.

The US economy is expected to have added 150,000 jobs in January, up from 199,000 reported the previous month. The unemployment rate is expected to remain steady at 3.9% and average hourly wages are expected to rise 0.5% MoM, 5.2% YoY in the month. Several jobs indicators, including Wednesday’s dreadful ADP report, are pointing to trouble in the US job market as we head into 2022. This, in turn, points to a significant risk of a downside surprise, which should already be exerting pressure from a weaker USD and rising gold prices.

Technical Outlook

From a technical standpoint, XAU/USD has struggled to capitalize on its recent bounce from a six-week low or find acceptance above the very important 200-day SMA. Therefore, it is prudent to wait for some follow-up buying off the weekly high around the $1810-1812 resistance zone before looking for further gains. Gold may then aim to test the $1830-$1832 supply zone before extending momentum towards January’s monthly high around the $1854 region. The latter marks a downward sloping trend line extending from June 2021 which, if decisively broken, will be seen as a new trigger for bullish traders and sets the stage for additional gains.

On the downside, any meaningful dip below $1,800 could still find decent support near the $1,790 area ahead of the $1,782-$1,780 region. Failure to defend the mentioned support levels would leave gold vulnerable for another slide towards the $1,768-$67 horizontal support. The next relevant support is near the $1,758 region and the $1,753-$1,752 zone, below which the downside might extend towards the $1,724-$23 area.

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