Gold weekly outlook: XAU/USD holds above $4,000 despite strong US jobs data

This weekly gold outlook was written late in the day on Friday. At the same time, gold was holding comfortably above $4,000 despite a much stronger-than-expected US jobs report that was reported earlier in the day, keeping this week's breakout intact despite falling 0.7% on the session. The payrolls beat gave the dollar only a modest lift, with investors still more preoccupied by the fallout from the tech sell-off than by the labour market. With short-dated yields lower and the breakout holding, the near-term gold outlook could turn bullish if we get some more technical confirmation, although next week's US CPI release could quickly put that view to the test.

 

• Gold was holding above $4,000 despite a far stronger October jobs report than markets expected
• The tech sell-off and lower short-dated yields have done more for gold than the dollar's modest gain has done against it
• US CPI on Tuesday is the next big test, with a hot print likely to lift yields and weigh on gold

 

Strong payrolls fail to dislodge gold

 

The October non-farm payrolls report was considerably stronger than expected. Employers added 165,000 jobs against forecasts of around 65,000, while the September figure was revised sharply higher to 60,000 from 29,000. The unemployment rate fell unexpectedly to 4.1% from 4.2%, and average hourly earnings rose 0.4% month on month, ahead of the 0.3% expected. Markets had braced for an upside surprise after several second-tier labour indicators beat forecasts earlier in the week, but the scale of the beat was still striking.

 

Ordinarily, a report of that strength would weigh on gold by lifting both the dollar and Treasury yields. This time the reaction was relatively contained. The greenback edged only a little higher, and gold held its ground above $4,000, though it was holding lower on the session.

 

Put another way, investors remain far more focused on the tech rout than on the labour market, and a solid jobs report merely reinforces the Federal Reserve's view that employment is not where the problem lies.

 

Tech sell-off and lower yields have done the heavy lifting

 

Gold's break above the $3,940 to $4,000 region came in the wake of the sharp sell-off in technology stocks, and the macro backdrop goes some way to explaining why. The tech selling, together with a pullback in oil prices following the Democrats' sweeping midterm victory, has reduced market expectations of further Fed tightening. Short-dated US yields have therefore fallen quite a bit, narrowing the dollar's yield advantage and lowering the opportunity cost of holding a non-yielding asset such as gold.

 

That said, the dollar has hardly collapsed. It has held firm against most currencies, particularly the commodity dollars, and foreign exchange markets appear to be treating the tech sell-off as a sector-specific repricing rather than a sign of a broader economic shock. That leaves gold supported, but by no means in the clear, should the dollar find fresh reasons to rally.

 

US CPI is now the bigger test for gold

 

Next week's inflation data could arguably matter more for gold than Friday's jobs report. US CPI is due on Tuesday at 13:30 GMT, followed by PPI on Friday 13 November. The Fed is firmly on inflation watch, and with the labour market holding up well, the focus has shifted squarely to prices.

 

The risks are no longer quite as symmetrical. A softer reading is what gold bulls would be hoping for, as it would keep a lid on yields and strengthen the case for the Fed to sit tight. But inflation remains sticky, and an overshoot in either CPI or PPI should revive expectations of a December rate hike. That would give yields a fresh boost and apply renewed pressure on gold, making the CPI print the likeliest trigger for the next big move.

 

Technical gold outlook and key levels to watch

 

From a technical analysis point of view, gold's break above the $3,940 to $4,000 region this week has turned former resistance into the support area to watch.

 

 

That zone had briefly given way earlier before being quickly reclaimed, and for as long as the gold price remains above it, the technical picture stays constructive. Break back below $3,940 and that would be a significantly bearish development, with the 127.2% Fibonacci extension of the last upswing at $3,738 the next stop, and the 161.8% extension further below. Resistance meanwhile comes in around $4,106 to $4,142, a region that has served as both resistance and support in the past and held on Thursday's test. Break that and the earlier dip below $4,000 would look like a false move, potentially paving the way for a sharp continuation rally as trapped sellers abandon their positions.

 

Frequently asked questions

 

What would turn the gold outlook bearish?

A move back below the $3,940 to $4,000 region would be a significantly bearish development, as it would undo this week's breakout. In that case, the 127.2% Fibonacci extension of the last upswing at $3,738 would be the first downside objective.

 

When is the next US CPI report?

US CPI is due on Tuesday 10 November at 13:30 GMT, with PPI following on Friday 13 November. Both releases could shape expectations for a December Fed hike.

 

Why does a hot US inflation print weigh on gold?

Stronger-than-expected inflation would lift expectations of further Fed tightening and push Treasury yields higher. Higher yields raise the opportunity cost of holding gold, which pays no interest, and that tends to apply pressure on the metal.

 

-- Written by Fawad Razaqzada, Market Analyst | Follow Fawad on Twitter @Trader_F_R