Gold prices continued their upward trajectory on Thursday, reaching $4,143 per ounce, the highest level since October 22. The precious metal has climbed 7.18% from its monthly low, driven by a combination of falling crude oil prices and declining Treasury yields. Market participants are now turning their attention to the upcoming US nonfarm payrolls (NFP) report, which could provide further momentum.
Oil's decline supports gold
The rally in gold began earlier this week when prices dipped to a multi-month low of $3,875. Since then, the metal has gained strength as crude oil prices retreated, with Brent crude falling to $93 and West Texas Intermediate (WTI) dropping to $86.80. The slide in oil is largely attributed to expectations that the Trump administration may face constraints in escalating the conflict with Iran, following the midterm election losses.
Investors speculate that President Trump might avoid new strikes on Iran to prevent a prolonged war, though there is a risk that Iran could initiate attacks. Alternatively, Trump could resume negotiations, but Iran has set conditions including an end to the blockade, sanctions relief, reparations, and the return of $13 billion in frozen assets.
Lower oil prices are generally bullish for gold because they suggest reduced inflationary pressures. This has led to a decline in US bond yields, with the 10-year Treasury yield dropping to 4.83% and the 5-year yield falling to 4.6%. Since gold offers no yield, falling yields reduce the opportunity cost of holding the metal, making it more attractive to investors.
Nonfarm payrolls in focus
The next major catalyst for gold is the US nonfarm payrolls report, scheduled for release on Friday. Economists forecast that the economy added 67,000 jobs last month, a modest increase from the 29,000 jobs added in the previous month. However, recent official jobs reports have significantly missed expectations; for instance, the September NFP came in at 29,000 versus the anticipated 89,000.
A stronger-than-expected jobs report could prompt the Federal Reserve to raise interest rates at its December meeting, which might weigh on gold. Conversely, a weaker report could lead the Fed to pause its rate hikes, potentially supporting gold prices.
Technical outlook
From a technical perspective, gold has staged a robust recovery, moving above the key level of $3,936, which was its lowest point in June. The metal has also surpassed the Strong, Pivot, Reverse level of the Murrey Math Lines tool, confirming a bullish breakout. Additionally, gold has broken above the upper boundary of a descending channel.
Gold is currently attempting to climb above the 50-day moving average. If successful, the rally could extend toward the Major S/R pivot point of the Murrey Math Lines tool at $4,375.
This article is for informational purposes only and does not constitute financial advice.
