Gold Price Analysis: XAU/USD recovers back to 200DMA, tests $1800, US jobs report in focus

• Spot gold has recovered back to its 200DMA at $1790 following Wednesday’s dip as low as $1760.
• Wednesday’s Fed meeting got the recovery started, while a synchronised fall in global bond yields post-BoE has helped on Thursday.

Spot gold (XAU/USD) has undergone a strong recovery following sharp losses incurred on Wednesday that at the time saw prices drop as low as $1760, with prices having now recovered all the way back to the 200-day moving average (DMA) at $1790. Spot prices even had a go at break above the $1800 level again in earlier trade, though bullish momentum has since waned. Likely, precious metal markets will see more rangebound trade until the release of the official US October labour market report at 1230GMT on Friday, ahead of which traders are likely to refrain from placing any big bets.

What’s been driving recent moves

US data released on Wednesday in the run-up to the Fed meeting was the main catalysts for spot gold’s drop to $1760 at the time, with the October ADP national employment estimate and the headline ISM Service PMI index both beating expectations by a significant margin and thus boosting optimism about US economic health at the start of Q4 2021. A benign/even slightly dovish market reaction to Wednesday’s FOMC policy announcement, where the bank announced $15B/month QE tapers for November and December, reiterated its base case expectation was for inflation to still subside in mid-2022 and Powell said the bank was willing to be patient on rate hikes, helped lift XAU/USD from lows an into the mid-$1770s. The catalyst behind the most recent surge from the $1770s to current levels has been a sharp drop in global bond yields, led by bond markets in the UK following a much more dovish than anticipated BoE policy announcement (they didn’t hike rates and pushed back against market pricing for the number of hikes expected in 2022 and 2023).

Strong US jobs data could pull the rug

If Friday’s October labour market report is strong (i.e. payroll number of 500K+, further decline in the unemployment rate and further upside in rates of wage growth), this will likely boost optimism that full employment is not too far off (a key condition the Fed says it wants to see before hiking interest rates). That would likely see short and long-term US (and probably global) bond yields supported. A move back towards 0.50% for the 2-year and back to 1.60% for the 10-year would not be a good thing for gold and, in this scenario, XAU/USD could lose its grip on the 200DMA and slide back towards the 21 and 50DMAs in the $1780 region.