Gold remains depressed as reduced Fed rate cut bets offset weaker risk tone

Gold remains on the defensive as mostly upbeat US NFP report tempers Fed rate cut bets.
US economic concerns cap the USD rally to a multi-month top and support the commodity.
A weaker risk tone contributes to limiting losses for XAU/USD, warranting caution for bears.

Gold (XAU/USD) attracts fresh sellers during the Asian session on Friday, though it remains confined in the weekly range amid mixed fundamental cues. Chances of another rate cut by the Federal Reserve (Fed) in December declined further following the delayed release of the September US Nonfarm Payrolls (NFP) report on Thursday. This assists the US Dollar (USD) in preserving its recent strong gains to the highest level since late May and exerts some downward pressure on the non-yielding yellow metal.

However, concerns about the weakening economic momentum on the back of the longest-ever US government shutdown hold back the USD bulls from placing fresh bets. This, along with a generally weaker tone around the equity markets, could act as a tailwind for the safe-haven Gold. Nevertheless, the broader fundamental backdrop and the recent repeated failures to build on the strength beyond the $4,100 mark warrant some caution before placing aggressive bullish bets around the XAU/USD pair.

Daily Digest Market Movers: Gold continues to be undermined by less dovish Fed expectations

The US Bureau of Labor Statistics published the closely-watched Nonfarm Payrolls report on Thursday, which showed that the economy added 119,000 new jobs in September. The reading followed the 4,000 decrease (revised from +22,000) recorded in August and surpassed the market expectation of 50,000.
Additional details revealed that annual wage inflation, as measured by the change in the Average Hourly Earnings, held steady at 3.8% YoY, compared to the estimates of 3.7%. This helped offset an uptick in the Unemployment Rate from 4.3% to 4.4% and validated less dovish Federal Reserve expectations.
This comes on top of less dovish October FOMC minutes on Wednesday, which showed that members remained divided about how to proceed. According to the CME Group’s FedWatch Tool, the probability of another interest rate cut by the US Federal Reserve in December has now dropped to around 35%.
This has been a key factor behind the US Dollar’s recent move up to its highest level since late May and continues to act as a headwind for the non-yielding Gold during the Asian session on Friday. However, the fragile global risk sentiment could help limit the downside for the safe-haven precious metal.
Traders now look forward to the release of flash US PMIs and the revised University of Michigan Consumer Sentiment Index. Furthermore, speeches by influential FOMC members will be scrutinized for more cues about the rate-cut path should provide a fresh impetus to the USD and the XAU/USD pair.
Ukraine’s President Volodymyr Zelenskyy said that he will negotiate with President Donald Trump on the US-backed 28-point peace plan that called on Ukraine to make painful concessions in order to end the Russian invasion. This keeps geopolitical risks in play and could further support the commodity.

Gold could accelerate the fall once the $4,020 confluence support is broken decisively

The precious metal is holding above a nearly one-month-old ascending trend-line support, currently pegged near the $4,020 region. The said area now coincides with the 200-period Exponential Moving Average (EMA) and should act as a key pivotal point. A convincing break below could make the Gold price vulnerable to weaken further below the $4,000 psychological mark and accelerate the slide towards the $3,931 support. The downward trajectory could extend further towards retesting the late October swing low, around the $3,886 region.

On the flip side, bulls need to wait for sustained strength and acceptance above the $4,100 mark before placing fresh bets. The subsequent strength could lift the Gold price to the next relevant hurdle near the $4,152-4,155 region, and the momentum could extend further towards reclaiming the $4,200 round-figure mark.