Gold (XAU/USD) Prices at Risk of Freefall Heading Into NFP Day

Key Points for Gold (XAU/USD):

Read more: Gold and Silver Price Forecast: XAU/USD, XAG/USD may fall amid retail traders bullish

US yields up, red hot ADP data, and NFP coming up

Gold prices continued their recovery in the Asian session after another day of searching for the key psychological level 1900/0z. Red hot data out of the US yesterday facilitated a push towards $1900 but failed to find acceptance below again.

Yesterday’s US ISM services and ADP data provided more signs of resilience in the US economy despite mounting calls that a recession is on its way. After the release, market participants took a more hawkish view on the Fed’s potential path on the rate hike front. Money market prices were priced in the immediate aftermath of about 36 basis points from highs by November, up from 28 basis points before the data releases.

US yields rallied in the wake of the data adding pressure on gold prices as the US 2Y yield briefly traded around the 5.12% mark, the highest level since 2007. Despite this, the greenback for some reason is still struggling to hold on to its gains as the decline appears to be The price action is the case of the data being published.

Returns of 2 years and 10 US years

Source: TradingView, prepared by Zain Fouda

With the US NFP and US jobs data looming today, there is no doubt that gold bears are hoping for another above expectations to finally inspire a sustained push below the $1900 an ounce level. Another positive release for the US economy will undoubtedly see an increase in interest rate hike bets from market participants and facilitate another rise in both US yields as well as the dollar index (DXY). This, in turn, will lead to a drop in gold prices and guarantee a fourth consecutive week of losses for the precious metal.

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Technical outlook and final thoughts

From a technical perspective, gold prices remain in a range between $1890 and $1940, with the $1934 level proving difficult for the bulls to break out this week. Gold is currently trading in a bullish flag pattern if you will, which in theory preceded a bullish breakout. However, given the macro picture in effect and another positive NFP print expected, the break-down is starting to look more attractive.

A daily candle close below the psychological level of $1900 could finally see gold’s long-awaited retest of the 200 day moving average which is currently resting around $1864 before a retest of the key $1850 support level could come into focus.

Gold (XAU/USD) Daily chart – July 7, 2023

Source: TradingView, chart by Zain Fouda

Customer Sense Data IG

We take a look at IG’s customer sentiment data and we can see that retailers are currently net positive long on gold with 74% of traders who hold long positions (as of this writing). At DailyFX, we usually take a contrarian view of crowd sentiment which means we could see gold prices continue to fall after a short rally to the upside.

Written by: Zain Fouda, Markets Writer DailyFX.com

Connect with Zain and follow her on Twitter: @employee