Gold price lacks firm near-term direction ahead of US NFP, Middle East tensions lend support

• Gold price extends its sideways consolidative price move as traders await a fresh catalyst.
• The recent USD strength caps gains for the metal, though geopolitical risks act as a tailwind.
• Traders also seem reluctant and look to the US NFP report before placing directional bets.

Gold price (XAU/USD) continues with its struggle to gain any meaningful traction on Friday and remains confined in a familiar range held since the beginning of the current week amid mixed fundamental cues. A further escalation of geopolitical tensions in the Middle East and the growing risk of a broader conflict continue to act as a tailwind for the safe-haven precious metal. That said, diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed) keep the US Dollar (USD) firm near a one-month top touched on Thursday and cap the upside for the non-yielding yellow metal.

Traders also seem reluctant and prefer to wait for the release of the closely-watched US monthly employment details before positioning for the next leg of a directional move for the Gold price. The popularly known Nonfarm Payrolls (NFP) report might influence expectations about the pace of the Fed rate-cutting cycle, which, in turn, will play a key role in driving the US Dollar (USD) demand and provide some meaningful impetus to the commodity. Nevertheless, the XAU/USD remains within the striking distance of the all-time peak touched last week and the bias seems tilted in favor of bulls. 

Daily Digest Market Movers: Gold price awaits fresh catalyst before the next leg of a directional move

• The US Department of Labor (DOL) reported on Thursday that the number of Americans filing applications for unemployment benefits increased marginally to 225K during the week ended September 28 as compared to the 218K previous. 
• This comes on top of a larger-than-anticipated increase in the US private-sector employment in September and an unexpected rise in the number of available jobs in August, providing evidence of a stable and still resilient labor market.
• Separately, the Institute for Supply Management (ISM) said that its Non-Manufacturing PMI rose to 54.9 in September, or the highest level since February 2023, suggesting that the economy remained on a solid footing in the third quarter.
• This further tempers market expectations for another oversized interest rate cut by the Federal Reserve and lifts the US Dollar to a one-month top, which, in turn, is seen as a key factor acting as a headwind for the non-yielding Gold price. 
• Hezbollah launched approximately 230 projectiles from Lebanon into Israeli territory on Thursday and Israel launched strikes early on Friday targeting Hezbollah's intelligence headquarters in the southern suburbs of Lebanese capital Beirut.
• Meanwhile, Israel will reportedly carry out a very significant retaliation within days to Iran's onslaught of nearly 200 ballistic missiles on Tuesday night, raising the risk of a full-blown war and lending support to the XAU/USD.
• Traders now look forward to the US Nonfarm Payrolls (NFP) report, which is expected to show that the economy added 140K jobs in September slightly lower than the 142K previous, and the Unemployment Rate held steady at 4.2%. 
• This, along with Average Hourly Earnings, will be looked upon for cues about the size of the Fed rate cut in November, which will play a key role in driving the USD demand and provide a fresh directional impetus to the commodity. 

Technical Outlook: Gold price bullish potential seems intact, $2,625-2,624 pivotal support holds the key

From a technical perspective, the range-bound price action might still be categorized as a bullish consolidation phase against the backdrop of the recent strong runup to the record peak. Moreover, oscillators on the daily chart are holding comfortably in positive territory and have also eased from the overbought zone. This, in turn, favors bullish traders and suggests that the path of least resistance for the Gold price remains to the upside. In the meantime, the $2,672-$2,673 area could offer immediate resistance ahead of the $2,685-2,686 zone, or the all-time high touched last week. This is closely followed by the $2,700 mark, which if conquered will set the stage for an extension of a well-established multi-month-old uptrend.

On the flip side, the weekly low, around the $2,625-2,624 area, which coincides with a short-term ascending channel resistance breakpoint, might continue to offer support and act as a key pivotal point. A convincing break below might prompt aggressive technical selling and drag the Gold price below the $2,600 mark, towards the next relevant support near the $2,560 zone. The corrective decline could extend further towards the $2,535-2,530 support before the XAU/USD eventually drops to the $2,500 psychological mark.

Risk sentiment FAQs

What do the terms'risk-on' and 'risk-off' mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is 'risk-on'?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is 'risk-off'?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

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