Gold Price Forecast XAU/USD – Weak NFP Data Will Support Case for Fed Ending Rate Hikes in March

Gold futures are edging slightly lower on Friday, but in a tight trading range on low volume as traders remain cautious after the market took a big hit on Thursday ahead of today’s key U.S. Non-Farm Payrolls report.

At 11:45 GMT, April Comex gold futures are trading $1925.80, down $5.00 or -0.26% and XAU/USD is at $1913.68, down $1.505 or -0.08%.  On Thursday, the SPDR Gold Shares ETF (GLD) settled at $177.89, down $3.78 or -2.08%.

Gold Plunges on Dovish ECB, BOE Tone

Gold futures lost nearly 2% on Thursday a day after the U.S. Federal Reserve raised its benchmark borrowing costs by 25 basis points (bps), and after the European Central Bank (ECB) and the Bank of England (BOE) both raised interest rates by 50 bps each, in line with expectations.

Bullion was crushed after the U.S. Dollar reversed early weakness on Thursday after the Euro and British Pound moved lower as traders took a dovish cue from policymakers at the European Central Bank (ECB) and the Bank of England (BOE), who said inflationary pressures in their economies have become more manageable.

Gold tends to go up when the central banks turn dovish, but in this case they offered nothing new to investors. In other words, buyers had been anticipating this news. Traders took profits and are now waiting for fresh news to drive the market beyond current resistance.

Investors Now Await the US Non-Farm Payrolls Report for January

Friday’s nonfarm payrolls report will be the next major test of the Fed’s fight against inflation. Signs are still pointing to a tight labor market, with the number of Americans filing new claims for unemployment benefits dropping to a nine-month low last week.

In today’s U.S. Non-Farm Payrolls report, analysts expect 185,000 jobs were added to the economy last month. This will be the lowest amount since January 2021. Analysts are also looking for the unemployment rate to edge up to 3.6%, and hourly wage inflation to stay flat at 0.3% on a monthly basis. The latter will indicate the strong labor market might have started to ease up.

A weaker-than-expected report will support the case for the Fed to end its rate hiking cycle in March. This could weaken the U.S. Dollar over the near-term. Strong data could support the dollar because it will give the Fed the room to implement additional rate hikes.

A weaker U.S. Dollar tends to be supportive for gold because it drives up demand from foreign traders.