Key Points
- Wednesday’s Fed Announcements brought bullish action to gold.
- Friday’s US Non-Farm Payrolls report (8:30 AM EST) will drive even more participation to the XAU/USD.
- A macro support level (2255.19) may produce solid XAU/USD buying opportunities during NFP.
Wednesday’s FOMC Announcements shook the forex, futures, and stock markets to their collective core. In the case of gold (XAU/USD), prices closed more than 1.40% higher in the Fed-fueled session.
Going into the FOMC Announcements, there was a 99.5% chance that the Fed was to hold interest rates firm at 5.25-5.5%. And, that’s what happened. So why the wild fluctuations in asset pricing? While it’s true that Wednesday’s “hawkish pivot” came as little surprise to traders, it was less hawkish than expected. Plans to slow the pace of the Fed’s balance sheet reduction program sent many people back to the drawing board.
The Fed Is Hawkish And Dovish?
On the hawkish side of the policy equation, the Fed acknowledged that the progress in fighting inflation has stalled. In response, Chairman Jerome Powell stated that the FOMC is ready to hold the Federal Funds Rate at current levels “for as long as appropriate.” This statement suggests that “higher for longer” is the path forward, a potential bearish market driver for gold.
Conversely, Powell also outlined the Fed’s plans to slow the pace of reducing its balance sheet in June. The policy move is designed to spare the money markets the type of stress and volatility witnessed in the fall of 2019. Also, Powell stressed that another interest rate increase is “unlikely.” Both of these statements sent the XAU/USD north as the hawkish pivot turned out to be less severe than first thought.
US Non-Farm Payrolls (NFP) On Deck
On Friday, 3 May 2024, at 8:30 AM EST, US Non-Farm Payrolls for April will hit newswires. Estimates have April NFP coming in at 243,000, beneath March’s figure of 303,000. Once again, the market will be watching for either upward or downward revisions to March’s numbers.
Perhaps more important than NFP will be the Unemployment Rate. Analysts anticipate Unemployment to remain unchanged at 3.8%. At Wednesday’s FOMC presser, a question was asked whether or not the Fed would cut interest rates to support lagging employment. Powell was non-committal but did acknowledge that rate cuts in response to a spike in unemployment were a possibility. The benchmark used was 4%; if unemployment rallies above 4% on Friday, be ready for a dovish USD and bullish gold.
Weekly Anchor Point On Horizon For Gold (XAU/USD)
Ahead of NFP, a key support level for the XAU/USD is coming into view. The Weekly 62% Fibonacci retracement (2255.19) area may set up an intermediate-term bottom in this market.
At press time, the XAU/USD is trading just above 2300.00, roughly 50.00 away from downside support. However, US NFP is capable of moving the market to this area. In the event that NFP comes in well above expectations, or Unemployment unexpectedly falls, bearish price action in gold is likely. If that’s the case, a solid buying opportunity from 2255.00 – 2260.00 could come into play.
Risk Disclosure: The information provided in this article is not intended to give financial advice, recommend investments, guarantee profits, or shield you from losses. Our content is only for informational purposes and to help you understand the risks and complexity of these markets by providing objective analysis. Before trading, carefully consider your experience, financial goals, and risk tolerance. Trading involves significant potential for financial loss and isn't suitable for everyone.
