Will the price of gold continue to rise?

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OANDA:XAUUSD   Gold Spot / U.S. Dollar
The February non-farm payroll data in the United States remained robust, however, the unemployment rate and wage growth slowed, weakening market expectations of a Fed rate hike. The short-term direction of the gold price remains dependent on US economic data, with a focus on next week's CPI report. Technically, the gold price is expected to continue its rebound trend next week.

The fundamental outlook for gold: the key remains on US economic data, with a focus on next week's CPI report.

On Friday, the US Bureau of Labor Statistics released data showing that the US added 311,000 non-farm jobs in February, lower than the revised figure of 504,000 jobs but far higher than the expected 205,000 jobs. The unemployment rate in February rose to 3.6%, higher than the expected and previous value of 3.4%. Average hourly earnings in February increased by 4.62% year-on-year, lower than the expected 4.7%, but higher than the previous value of 4.40%.

Although the number of non-farm payroll jobs added in February was significantly higher than expected, the rise in the unemployment rate and the slowdown in wage growth have tempered market expectations of a 50 basis point rate hike by the Fed at its March meeting. At the same time, the market has priced in a significant decline in the terminal rate of the Fed, and expectations of a rate cut by the end of the year have resurfaced.

According to the CME FedWatch Tool, the probability of a 50 basis point rate hike by the Fed in March is 39.5%, while the probability of a 25 basis point rate hike is 60.5%, down from 68.3% and 31.7%, respectively, the day before.

Based on federal funds rate futures, the currency market currently expects the Fed's peak rate to reach 5.27% in July, down from the previous expectation of 5.67% in October, and expects the Fed's rate to fall to 4.94% by the end of the year. The market has fully priced in a 25 basis point rate cut by the Fed before the end of the year.

As market expectations of a Fed rate hike have cooled, the US dollar index fell 0.61% to 104.64 on Friday, while the yields on 2-year and 10-year US Treasury bonds plunged by 28 basis points to 4.59% and 21 basis points to 3.70%, respectively. The gold price surged nearly $40 to $1,867 per ounce after a $33 drop on Tuesday.

Overall, the February non-farm payroll report still shows that the US labor market remains strong, but some data is beginning to show signs of cooling. Against the backdrop of high interest rates in more than 40 years, the market has made a very sensitive response, and expectations for the Fed's interest rate outlook have quickly weakened, causing the US dollar and US Treasury bond yields to plummet, driving the gold price higher.

Finally, the short-term direction of the gold price still depends on the US economic data, and the US CPI report for February, to be released next Tuesday, is particularly important. If the core inflation or detailed data shows signs of a slowdown in inflation, it could push the US dollar and US Treasury bond yields even lower, thereby boosting the gold price. If the data continues to show sticky inflation, the US dollar and US Treasury bond yields may not fall as quickly.

Technical Outlook for Gold: Likely to Continue its Upward Trend

On the weekly chart, gold rebounded from a significant support area formed by the 100-week moving average and the weekly high of August 8, 2022 (1,807). This week's candle has a relatively long lower shadow, continuing the rebound trend from last week. From the perspective of the trend pattern, the upward momentum of gold is relatively strong, and it is expected to continue its upward trend next week.

If the trend does indeed continue to rise, the immediate resistance levels may be at the 61.8% Fibonacci retracement level (1,899), the weekly low of January 16 (1,897), and the weekly high of February 6 (1,888). On the other hand, if the trend falls back, the market may test the significant support area mentioned above (1,807/1,810) again.

However, the specific direction of the trend may still depend on the US CPI data. It is worth noting that if the data does not cause gold to significantly drop, it will help confirm the (1,807/1,810) area as a temporary low point for gold.
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