Gold Prices Drop 2% on Strong US Jobs Data

Gold prices dropped on Monday due to strong US jobs data. The positive economic report dampened expectations for a more aggressive interest rate cut by the Federal Reserve, reducing demand for gold. While geopolitical tensions in the Middle East offer some support for gold as a safe-haven asset, the overall trend is currently bearish.

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Gold Prices Drop 2% on Strong US Jobs Data

Gold Prices Drop 2% on Strong US Jobs Data: On Monday, gold prices (XAU/USD) saw increased selling pressure, dropping to a new daily low near the $2,640 mark as the European session approached. The US Dollar (USD) remains strong, sitting close to a seven-week high, as traders reassess the likelihood of a significant interest rate cut by the Federal Reserve in November, following a positive US jobs report released on Friday. This, coupled with a generally favorable risk sentiment, is contributing to decreased demand for gold.

Global risk appetite is buoyed by reduced concerns about a US economic slowdown and optimism surrounding various stimulus measures from China. However, ongoing geopolitical tensions, particularly related to the conflicts in the Middle East and concerns about a potential escalation, may continue to support gold as a safe-haven asset.

Therefore, it may be wise to wait for a break below the $2,635-$2,630 support level before considering further bearish positions on XAU/USD.

The impressive US employment data released on Friday has dampened market expectations for a more aggressive easing of monetary policy by the Federal Reserve, further diminishing demand for non-yielding gold. According to the US Labor Department, the economy added 254,000 jobs in September, significantly exceeding forecasts, while the unemployment rate unexpectedly fell from 4.2% to 4.1%.

Additionally, revisions revealed that 72,000 more jobs were created in July and August than previously reported, indicating a robust labor market and a healthier economy overall. The CME Group’s FedWatch Tool now shows that traders believe there is nearly a 95% chance the Fed will cut borrowing costs by 25 basis points during its November policy meeting.

Meanwhile, the yield on the benchmark 10-year US government bond hovers around the 4.0% mark, and the US Dollar remains strong, nearing a seven-week high, keeping XAU/USD bulls under pressure. The positive non-farm payroll report has alleviated fears of an economic slowdown, and combined with optimism over stimulus measures from China, this supports a favorable atmosphere in the equity markets.

However, escalating tensions in the Middle East, including Israel’s intensified bombardment in Gaza’s Jabalia refugee camp and subsequent airstrikes in Lebanon, along with Hezbollah’s retaliatory strike on Haifa, heighten the risk of a full-scale war in the region.

These developments could bolster gold’s status as a safe-haven asset, prompting caution among bearish traders. Additionally, official data released earlier Monday indicated that China’s gold reserves remained steady for the fifth consecutive month, totaling 72.8 million fine troy ounces at the end of September.

Gold Prices Drop 2% on Strong US Jobs Data: From a technical standpoint, the current range-bound price action can still be seen as a bullish consolidation phase following the recent strong rally to record highs. Additionally, the oscillators on the daily chart remain comfortably in positive territory and have eased from overbought levels. This indicates that the path of least resistance for gold prices is likely upward, supporting the potential for a breakout.

However, it is wise to wait for some follow-through buying above the $2,670-$2,672 resistance zone before entering new bullish positions. Success in breaking through this level would open the door to the $2,685-$2,686 area, which represents the all-time high, and the $2,700 mark. If gold prices surpass this threshold, it would reinforce the continuation of the established multi-month uptrend.

On the downside, the lower end of the current trading range, around the $2,630 level, is expected to provide immediate support for gold prices and serve as a critical pivot point for short-term traders.

A decisive break below this support could trigger technical selling, potentially driving XAU/USD below the $2,600 mark and towards the next significant support level near $2,560. This corrective decline could extend further to the $2,535-$2,530 region, ultimately heading towards the psychological support level at $2,500.