As of Monday morning, gold traded around $4,400. The market was optimistic that the unexpectedly strong U.S. jobs report would...
As of Monday morning, gold traded around $4,400. The market was optimistic that the unexpectedly strong U.S. jobs report would prompt another interest rate hike. August’s jobs data showed 162,000 jobs added, close to triple the estimated 56,000, and an unemployment rate of 4.1%. Markets now expect about a 62% chance of a September rate hike. As a result, interest rates and the dollar are steady.
Gold’s short-term macro outlook is more defensive. Stronger employment gives Fed Chair Kevin Warsh more leeway to worry about inflation. Higher oil prices also complicate matters. This week’s inflation data becomes the key data point. Gold is also stuck in a range between the $4366 support level and $4450 resistance level. A breakout could occur in the near future.
NFP Changes the Gold Story Again
Friday’s report on jobs was exactly what gold investors did not want to see. The U.S. added 162,000 jobs, which was far above the expectation for about 56,000. It was the fastest monthly jobs growth in the past five months. The unemployment rate remained the same at 4.1%. The data also showed broad employment growth.
Leisure and hospitality added close to 62,000 jobs; local government education added about 42,000, while manufacturing, construction, and health care added jobs as well.
While the employment data was weak, it was a key argument for most investors against another rate increase by the Fed. July’s employment contraction raised concerns for investors about how the Fed’s plans would likely cause further damage to an already weak job market. The August data does just the opposite of reinforcing that argument.
Fed Hike Odds Return Above 60%
Market pricing on another Fed Funds rate hike in September now sits at roughly 62%. Reversing on the dovish sentiment following Fed Governor Christopher Waller’s comments saying policymakers could go on hold should inflation continue to improve, this shows market pricing beginning to move back to the Kevin Warsh camp.
Warsh’s Jackson Hole speech argued that inflation is still too high, that policymakers have greater leeway to pursue normalization of policy should the labor market remain strong and resilient, and that policymakers should rebalance their policy focus to address the rest of the inflation goal. The latest jobs report provides more credibility to this argument. From an opportunity cost perspective, the continued rise in rates makes gold less attractive.
Wage Growth Offers One Small Relief
Not entirely hawkish, some relief came as the report stated workers’ average hourly earnings grew by 3.1% from last year, a slowing from 3.2% in the previous report. This indicates wages are not causing an increase in inflation.
While the Fed is reacting to inflationary concerns, many are also concerned about the explosive price growth in energy, aggressive trade measures, and supply constraints. So slower wage growth may not help to overcome the strong employment data. With that in mind, the responsibility now lies with the reported inflation data this week, to indicate whether the price pressures are in fact easing.
CPI and PPI Become the Next Major Catalysts
The focus now is on inflation, not employment. Should sticky or higher than expected CPI and PPI data be released in the coming months, combined with the 162,000 payroll increase, it would almost compellingly suggest that the Fed should increase interest rates. It would likely support a move to higher Treasury yields and weaker gold. Less inflation would provide more balance. Waller and other officials calling for patience would also have an argument, as monetary policy is now restrictive despite the strengthening labor market.
The outlook for gold is therefore increasingly simple:
- More job growth and high inflation is bearish for gold.
- More job growth and low inflation is neutral and even bullish.
Iran and Oil Continue to Be an Inflation Problem
Iran and Oil Remain an Inflation Problem
U.S.-Iran hostilities led Brent and WTI to increase by 7.6% and 10% respectively, and concerns about the Strait of Hormuz remain. Typically, geopolitical tensions increase gold prices because of safe-haven buying.
However, though 2026 continued to see the Iran dispute, this usually has the opposite effect. Higher oil prices also include a boost in inflation expectations, rising Treasury yields and Fed tightening. All of these are much more important than the safe-haven effect.
Diplomatic pressure is being increased and a de-escalation of hostilities with lower oil prices would remove an inflationary headwind to gold. Still Seeing Demand for the Large-Scale Picture
Structural Demand Still Supports the Bigger Picture
The macro picture in the short term is worse; however, gold demand in the larger picture is still strong when compared to the demand in the second quarter dips. According to the World Gold Council, July saw the return of net inflows to gold ETFs globally in physically backed form, and the demand for gold particularly remained strong in Asia.
China in particular has a strong structural demand. The PBOC continued its buying streak for the 21st month in a row and added another 20 tonnes to boost holdings to around 2,366 tonnes. Chinese ETFs continued to accumulate gold during the month.
All these flows are important since the time frames of central banks and strategic institutional investors are far longer than the macro traders who are constantly reacting to each Feds pace repricing. This means that a bullish case for gold exists with the pressure on medium term interest rates.
Gold Technical Analysis: Triangle Tightens Between $4,366 and $4,450
Gold is currently consolidating at roughly $4,405 on the 4-hour chart. Here price is sandwiched between a falling trendline and a broader rising support line.
Something I have noticed are the repeated defenses around $4,365-$4,366. While buyers continue to step in, price rebounds have been rather weak. They have been unable to break the moving average at $4,438 and cross $4,449.54.
We are left with a tightening triangle. Currently, $4,366 and $4,450 are the levels that most likely dictate the next directional move. Negatively, momentum is also just slightly in favor of the bears, as the RSI is slightly below the signal line at 45.
A 4 hour close above $4,449.54 and the falling trendline would improve the structure and open the price up to $4,511.80 and $4,581.24.
On the other side, losing $4,365.91 opens the price up to the $4,296 and $4,300 rising trend line, exposing $4,231.65.
- Resistance: $4,450, $4,512, $4,581
- Support: $4,366, $4,300, $4,296, $4,232
I currently view the triangle as neutral.$4,450 is the level to beat to favor a move to $4,512, while a break to $4,366 favors a fall to $4,300.
Frequently Asked Questions
Why is gold under pressure after NFP?
August NPF was 162,000 (like expected), signaling that the Fed will indeed focus on inflation and may consider raising rates in September.
What will move gold this week?
The new focus is on the US inflation data. Strong inflation may be supportive of the Fed- driven hard inflation and the recovery of gold. However, weak inflation may be supportive for gold.
What are the key XAU/USD levels?
Currently, gold is bounded between support at around $4,366 and resistance at $4,450. If gold breaches $4,450, we can expect gold to reach $4,512. If gold breaks $4,366 however, $4,300 is within range.
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