Gold drifts lower as strong US employment report crushed hopes of Fed cuts

Gold prices (XAU/USD) have opened the week in the same bearish tone seen at the end of the previous one. December 8 upbeat US Nonfarm Payrolls (NFP) report, dampened investors’ hopes of Federal Reserve (Fed) cuts in early 2024, giving a fresh boost to US yields, to the detriment of the yieldless precious metal.

Bullion remains depressed below the $2,000 psychological level in the European trading session with traders in a cautious mood, awaiting US inflation data on December 12 and the outcome of the Fed’s monetary policy meeting due on December 13, according to FX Street.

Investors' sentiment is frail on December 11 following the downbeat consumer inflation data from China over the weekend. The country’s CPI has shown its lowest growth in the last three years, reviving concerns that the uncertain situation in the world’s second-largest economy may bring global growth lower next year.

Beyond that, the escalating tensions in the Middle East are contributing to weigh on risk appetite, as we head into a week packed with central banks' decisions, starting with the Federal Reserve, on December 13.

Daily Digest Market Movers: Gold is turning lower with US yields and the US Dollar higher

• US employment beat expectations on Friday, with wage inflation rising well above expectations. This has curbed hopes of Fed cuts, giving a fresh boost to the US dollar and weighing on Gold.
   
• US Nonfarm Payrolls increased by 199K in November, beating expectations of a 180K rise, following a 150K increment in October.
   
• Hourly earnings accelerated 0.4 per cent,m above the 0.3 per cent market consensus from October’s 0.2 per cent. This adds pressure to consumer prices and casts doubts about Fed cuts in the near term. 
   
• According to the CME Group FedWatch Tool, futures markets are now pricing a 40 per cent chance of a rate cut in March 2024, from the nearly 60 per cent probability seen before the US NFP report.
   
• The US yields have bounced higher, with the benchmark 10-year US Treasury yield regaining 15 bps after the US NFP release and dragging the US Dollar higher and Gold lower with them.
   
• News, reporting attacks on US troops by Iran-backed militias in Iraq and Syria, is increasing fears about an escalation of the Gaza conflict, contributing to underpinning support to the safe-haven US Dollar.
   
• Traders are now looking at US consumer inflation figures ahead of the Fed's interest rate projections for more info about the bank’s monetary policy plans.

Technical Analysis: Gold looking increasingly vulnerable below $2,000

The technical picture shows Gold prices under increasing bearish pressure after breaching the $2,000 psychological level. The pair has breached below the 50 and 100 SMAs in 4-hour charts and is now pushing against the 200 SMA.

Further downtrend will push the precious metal towards a key support area at $1,982, where the 50 per cent Fibonacci retracement of the October - December rally meets the neckline of a Head and Shoulders (H&S) pattern.

This is a common figure for trend shifts. A clear break of the neckline level would put bears in control, aiming for mid-November lows, at $1,934 ahead of $1,838 and the measured target of the H&S pattern at $1,851.

On the upside, above $2,000, the pair would meet resistance at $2,020 previous support, and $2.040.

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Pound Sterling.