Gold prices jumped on Friday after comments from Fed Chair Powell suggested potential changes in interest rates. This sparked increased expectations of interest rate cuts in September, with two cuts predicted by the year’s end. Market participants are now closely watching the upcoming US Non-Farm Payroll (NFP) report, as it could greatly impact interest rate predictions.

Impact of NFP Data

If the NFP data is positive, it might reduce the chances of a September rate cut, which could negatively affect gold prices. On the other hand, weak data could raise expectations for more rate cuts, helping gold prices rise. Although we expect real yields to fall due to Fed easing, any adjustments to short-term interest rates may cause fluctuations in gold’s current upward trend. In the daily gold chart, prices are moving between 3,438 resistance and 3,245 support. The market remains in a range until a clear breakout happens. In the 4-hour chart, gold saw a rise but then fell back to 3,350. Buyers are likely targeting the resistance level. If prices drop further, sellers might look to reach the 3,245 support. Today’s key focus is on the US Consumer Confidence report, followed by US Jobless Claims on Thursday and the US PCE price index on Friday.

FED’S Impact On Gold

The Federal Reserve’s recent dovish shift has changed the outlook, leading us to believe rate cuts are on the way this year. The market is currently forecasting a high chance of a September cut, especially after July’s Core PCE data showed a manageable 2.7%. Attention will be on the upcoming labor market data for direction. Next week, the US Non-Farm Payrolls (NFP) report will be crucial for derivative traders. It could determine the Fed’s next move and influence gold’s short-term direction. Traders should be ready for two different outcomes. If the jobs data is strong, say over 200,000, expectations for a September rate cut will likely fall, putting pressure on gold prices. In this case, traders might consider buying puts on gold futures or ETFs to hedge against or profit from a potential drop to the 3,245 support level. A solid report would challenge the current dovish stance. Conversely, if the jobs report shows less than 150,000 jobs, it would boost expectations for more rate cuts, possibly three by year’s end. This could drive gold prices higher, making call options appealing to capture the upward momentum toward the 3,438 resistance. Such low job numbers would indicate that the economy is slowing sufficiently for the Fed to take action. We saw a similar situation during the aggressive rate hikes of 2022-2023, where consistently strong labor data kept real yields high, putting pressure on gold prices. Now, with the Fed easing, lower real yields should support gold over the long term, though short-term fluctuations will be driven by data surprises. Technically, gold is trading in a defined range between 3,438 resistance and 3,245 support. Before the NFP release, traders might consider volatility plays, like buying straddles, to profit from a breakout in either direction. Until that happens, price movements are likely to stay contained. In the short term, the 3,350 level is a key pivot point. If prices dip toward this level in the coming days, it could be a buying opportunity for tactical traders looking to purchase short-dated call options, expecting a bounce. However, if prices break below this level, it would signal weakness and open the door for a move down to the main 3,245 support. Create your live VT Markets account and start trading now.

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