Gold price rallies despite strong US NFP report

• Gold rebounds 0.69% despite significant US job additions, challenging Fed's rate cut path.
• Gold recovers from post-labor report drop as investors weigh Fed's cautious disinflation stance.
• Upcoming US inflation and retail sales data set to influence gold's trajectory, Fed policy.

Gold price rebounded off daily lows on Friday, extending its rally for the fourth consecutive day as traders shrugged off a strong United States (US) Nonfarm Payrolls report. This tempered the Federal Reserve’s (Fed) concerns about the labor market, but not so much inflation as some officials acknowledged. The XAU/USD trades at $2,687, up 0.69%.

Bullion fell sharply after the US Bureau of Labor Statistics (BLS) revealed that the economy added an outstanding number of people to the workforce, topping 200K. As a consequence, the Unemployment Rate dipped, while investors priced in fewer interest rate cuts based on the fact that the economy continues to create enough jobs, while the disinflation process “halted,” according to the Fed’s latest minutes.

Nevertheless, XAU/USD recovered once market participants digested the data. The data reassured Fed officials that the labor market remains healthy while they tackle inflation, which recently edged higher after the US central bank lowered rates by 100 basis points in 2024.

The US Dollar rose sharply to multi-month highs according to the US Dollar Index (DXY). The DXY hit 109.96 before trimming gains and is at 109.68, up 0.49%. US Treasury bond yields soared, yet had stabilized, particularly the belly of the curve.

Chicago Fed President Austan Goolsbee said they don’t complain because the economy has created over 250K jobs. He added that the jobs market seems stable “at full employment,” adding that if conditions are stable and there’s no rise in inflation, “rates should go down.”

Given the backdrop, investor focus will shift to next week’s data. The US schedule will feature inflation figures on the producer and consumer side, alongside Retail Sales and jobless claims for the week ending January 11.

Daily digest market movers: Gold price surges accompanied by the US Dollar

• Gold price shrugs off higher US real yields, which rose by two bps to 2.30%. At the same time, the US 10-year T-note yield soared seven and a half bps to 4.767%.
• The US Bureau of Labor Statistics (BLS) revealed that the economy created 256K jobs last month, although November was revised downward from 227K to 212K. The consensus projected 160K people to be added to the workforce, with private hiring totaling 223K.
• The Unemployment Rate fell to 4.1%, while Average Hourly Earnings (AHE) dipped from 4% to 3.9%. Following the data release, traders expect the Federal Reserve to cut rates just once in 2025.
• Easing expectations of the Federal Reserve continued to edge lower. The December Fed funds futures contract is pricing in 30 basis points of easing.
• US Consumer Sentiment in January announced by the University of Michigan (UoM) missed estimates of 73.8 and was down to 73.2. Inflation expectations for one year rose by 3.3% up from 2.8% and for a five-year period increased from 3% to 3.3%.
• On Thursday, Fed Governor Michelle Bowman maintained a hawkish stance, saying the central bank should be cautious in adjusting interest rates, while Kansas City Fed Jeffrey Schmid added that rates are “near” neutral.
• Earlier, Philadelphia Fed Patrick Harker revealed that the US central bank could pause amid uncertainty, while Boston Fed Susan Collins said the current outlook suggests a gradual approach to rate cuts.

XAU/USD technical outlook: Gold price soars above $2,650 as bulls stepped in

Gold’s uptrend remains in place as the yellow metal has carved successive series of higher highs and higher lows, with traders eyeing the $2,700 mark. Momentum is strongly tilted to the upside as seen on the Relative Strength Index (RSI) indicator, which shows bulls are in charge.

If XAU/USD clears $2,700, the next resistance would be the December 12 high of $2,726 and the all-time high (ATH) at $2,790.

Conversely, a drop below $2,650 will put into play a challenge of the 50 and 100-day Simple Moving Averages (SMAs) at $2,645 and $2,632 respectively. On further weakness, $2,600 is up next, ahead of the 200-day SMA at $2,503.