Gold Price Forecast: XAU/USD Eyes Covid, Initial Jobless Claims as NFP Nears

• Gold prices may be primed to continue recent gains on safe-haven appeal

• XAU/USD focused on US labor market as Initial jobless claims, NFP nears

• Technical posture looks primed for more gains after bullish SMA crossover

The price of gold looks primed to continue rising as traders cautiously evaluate market conditions in the face of declining economic barometers. Gold made a sharp reversal higher in early August and erased a steep decline from earlier in the month when the yellow metal hit a multi-month low. That drop was predicated on the view that the US economy was well on its way to giving the Federal Reserve what it needed to raise rates: a strong labor market. Julys non-farm payrolls report (NFP) crossed the wires at 943k versus 870k expected.

The US jobs market is now the key component for the Federal Reserve, given that inflation has already exceeded the 2% target. That puts economic data concerning employment in sharp focus for market participants. For the yellow metal, it simply means “more jobs = bad, fewer jobs = good”. Other factors are at play of course, but when taking a broad view, the Feds path is arguably the most relevant.

The growing spread of Covid‘s Delta variant offers the main threat to that goal. Virus cases, hospitalizations, and deaths recently hit the highest levels since January (see chart below). Gold’s safe-haven appeal may be one reason for the recent strength, and Covids perceived impact on the US labor market (and thereby its implications for keeping the Fed at a dovish setting longer) is perhaps another tailwind.

With that in mind, this Fridays August NFP report is likely to be a key directional driver. The median consensus estimate stands at +725k, according to a Bloomberg survey. A private-sector estimate from ADP that precedes the official NFP report released earlier this week showed just 374k jobs added. It is important to note, however, that the ADP data has varied considerably from what Bureau of Labor Statistics (BLS) reports over the past year. The market gives more weight to the latter.

Traders will have one more data points before Friday to help judge the strength of the US labor market. The weekly initial and continuing jobless claims figures will cross the wires on Thursday. Economists expect initial claims to show 345k for the week ending August 28, while continuing claims are expected to cross at 2.77 million. Both estimates represent a reduction from the prior reporting period. If these results come out better than expected, this may push gold lower going into Fridays NFP report.

GOLD TECHNICAL FORECAST:

Gold‘s technical posture brightened after XAU/USD broke above a descending channel top following a sharp move higher from that formation’s lower bound. The yellow metal went on to quickly overtake the falling 200-day Simple Moving Average (SMA), and is currently grappling with the 100-day SMA. Moreover, the 100-day SMA traversed above the 200-day SMA last week, a bullish sign.

A move lower may see the 200-day SMA step in to provide support, with channel resistance below that offering the potential to become support. An intermediate support level may be offered by the 78.6% Fibonacci retracement from the July/August move. That July high at 1834.14 is XAUs current upside target.

GOLD DAILY CHART