Gold price: After the unexpected kneejerk reaction, here’s what’s next

Gold price rallied past the crucial level of $1,850 as a kneejerk reaction to the mixed US job numbers. Data released by the US Labor Department earlier on Friday showed a decline in job creation in February. Even so, the labor market remained strong despite the Federal Reserve’s aggressive efforts. In the coming week, investors will be eyeing further cues on the direction of the Fed’s interest rate hikes from the US CPI numbers.

US jobs data

Nonfarm payrolls increased by 311,000 in February compared to the analysts’ estimate of 205,000. Granted, it was lower than January’s 504,000.

At the same time, unemployment rate rose by 3.6% compared to the predicted 3.4%. Similarly, the labor force participation rate rose higher to a level last seen in March 2020 at 62.55.

On the bright side, February’s job growth was significantly lower than in January. Furthermore, the average hourly earnings increase by 4.6% on a year-on-year basis, a figure lower than the estimate of 4.8%. On a month-on-month basis, the 0.2% increase was still below the 0.4% forecast.

Even with the strong US jobs data, gold price edged higher as the US dollar and Treasury yields eased. Amidst the choppy market, investors chose to focus on the decline in job growth and average hourly earnings. Subsequently, they made a case for a 0.25% rate hike by the Fed instead of 0.50%.  

This outlook is largely behind the easing of the US dollar and Treasury yields and consequent boosting of gold price. The precious metal tends to thrive in an environment of lower interest rates as it lowers the opportunity cost of holding the non-yielding bullion.  

Gold price forecast

The kneejerk reaction to the US jobs data saw gold price rally to a level last recorded on 14th February. In fact, it attracted enough buyers to break the resistance zone at 1,850. As at the time of writing, it was up by 1.73% at 1,861.04. Over the past three sessions, it has risen by about 3%.

As seen on its daily chart, the precious metal is trading above the 25 and 50-day EMAs; an aspect that hints at further gains into the coming week. Based on both the fundamentals and technicals, I am cautiously bullish on gold price for the short term.

On the one hand, I expect the precious metal to to continue finding support along the 200-day EMA at 1,805.78. However, it will likely not yield enough momentum to retest the crucial level of 1,900.

More particularly, gold price may ease back below 1,850 as traders await for a confirmation of Fed’s interest rate strategy via the US CPI numbers. If that happens, 1,830.73 may be a pivot worth watching.

This thesis will be invalidated by a retreat past 1,805.78. If that happens, the bears will have an opportunity to retest the support zone at 1,767.30.

gold price
gold price

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