Gold Worth Restoration Unravels Forward of NFP Report Amid Rising US Yields

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Gold Price Talking Points

The price of gold struggles to retain the advance from the September low ($1722) as the 10-Year Treasury yield climbs to a fresh monthly high (1.57%), and key developments coming out the US may continue to drag on the precious metal as the Non-Farm Payrolls (NFP) report is anticipated to show a pickup in job growth.

Gold Price Recovery Unravels Ahead of NFP Report Amid Rising US Yields

The opening range for October warns of a further decline in the price of gold as it slips to a fresh monthly low ($1746) during the first full week, and bullion may continue to carve a series of lower highs and lows over the coming days as fresh data prints coming out of the US raises the scope for an imminent shift in Federal Reserve policy.

Despite the limited reaction to the ADP Employment report, the updated NFP figures may encourage the Federal Open Market Committee (FOMC) to taper its purchases of Treasury securities and mortgage backed securities (MBS)as the US economy is expected to add 473K jobs in September. As a result, a further improvement in the labor market may prop up US yields as market participants brace for a change in regime, and the price of gold may face headwinds ahead of the next Fed rate decision on November 3 as theSummary of Economic Projections (SEP) shows a forward shift in the interest rate dot-plot.

With that said, the recovery from the August low ($1682) may turn out to be a correction in the broader trend rather than a change in market behavior as longer-dated Treasury yields retrace the decline from earlier this year, and the opening range for October points to a further decline in the price of oil as it trades to a fresh monthly low ($1746) during the first full week.

Gold Price Daily Chart

Image of Gold price daily chart

Source: Trading View

  • Keep in mind, the negative slope in the 200-Day SMA ($1800) indicates that the broader trend for bullion remains tilted to the downside, with a ‘death cross’ formation taking shape in August as the Relative Strength Index (RSI) pushed into oversold territory.
  • However, lack of momentum to test the March low ($1677) generated a textbook buy signal in the RSI as the oscillator climbed back above 30, with rebound from the August low ($1682) pushing the price of gold briefly above the 200-Day SMA ($1802) going into September.
  • Nevertheless, the price of gold appears to have reversed course the failed attempt to clear the July high ($1834), and lack of momentum to hold above the Fibonacci overlap around $1743 (23.6% expansion) to $1763 (50% retracement) may push the price of gold to fresh monthly lows, with a break below the September low ($1722) bringing the $1690 (61.8% retracement) to $1695 (61.8% expansion) region on the radar.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong



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