Gold Price Prediction: XAU/USD is eroding vital support with an eye on a major breakout

The price of gold has been under pressure at the start of the week due to a strong US dollar in the open, which is edging to new highs against its counterparts, with a robust US labor market bolstering bets on higher interest rates as traders brace for data that is expected to show persistently high inflation. At the time of writing, the gold price has hit a daily low of $1,691.89 and a daily high of $1,699.91, with a loss.

Nonfarm payrolls increased by 263,000, exceeding the average projection of an increase of 250,000 positions. Education and health services, as well as leisure and hospitality, led to an increase of 244,000 jobs in the service industry. In September, the unemployment rate decreased to 3.5% from 3.7% in August, contrary to expectations that it would remain steady. The labor force participation rate decreased by 0.1% to reach 62.3%.

This goes against their efforts to restore demand-supply equilibrium in the labor market in the face of inflation, meaning that substantial rate hikes are a certain conclusion for the foreseeable future, and this is a headwind for gold prices relative to a flattening yield curve. This will be a crucial week for the upcoming days, since there are numerous US calendar events, such as the minutes of the previous Fed meeting, US inflation data, and Retail Sales.

Futures pricing indicates that nearly 90% of traders anticipate a 75 basis point rate hike in the United States next month and over 150 basis points of tightening by May. Consequently, US stocks fell on Friday. The Dow Jones Industrial Average dropped more than 600 points, or 2.11 percent, while the S&P 500 and Nasdaq Composite IXIC shed 2.8% and 3.8%, respectively, as investors bet that the Fed's war against inflation will continue apace. The MSCI world equity index, which measures stocks in 45 countries, declined by 2.45%.

In some ways, this is beneficial for gold, as investors will seek out the yellow metal as a safe haven. However, despite continuous geopolitical uncertainty, the bears continue to run on the belief that the Fed is unlikely to stop boosting rates preemptively due to persistently growing inflation.

TD Securities analysts claimed, "A lengthy period of restrictive rates means traders should reject gold's siren calls, as a sustained decline will likely prevail, as quantitative tightening continues to force real rates higher." In recent days, gold's upward momentum has waned as a result of a steady stream of hawkish Fed comments. With today's crucial employment report and next week's inflation data, there are numerous factors that might move the focus back to hawkish interest rate policy.

During this time, Chinese markets reopen following a weeklong holiday. The 20th National Congress of the Communist Party begins on Sunday and is expected to reinforce Xi Jinping's leadership. A persistently weak yuan environment is an additional supportive element for the US dollar as China's economy struggles under the weight of continued COVID outbreaks and capital controls.

Caixin's Services Purchasing Managers' Index (PMI) for September 2022 fell to 49.3 from 55.0 in August, indicating a return to contraction. China's official services PMI missed expectations at 50.6 (anticipated 52.0, prior 52.6), and China's Caixin / Markit Manufacturing PMI for September was dismal at 48.1. (expected 49.5, prior 49.5). Considering the multitude of geopolitical concerns involved, this should all go to the U.S. dollar.

North Korea is rearing its ugly head once more with the news that it conducted nuclear operating training over the weekend, as reported by Reuters, which cited North Korea's KCNA news agency on Monday. Authorities in neighboring nations said that the nation fired two ballistic missiles early Sunday morning, the seventh such launch by Pyongyang in recent days, adding to broad worry in Washington and among its allies in Tokyo and Seoul.

On the flip side, analysts at TD Securities stated that "USD upside will be more difficult to achieve at this time" because the MOF and BOJ appear bent on stifling USDJPY volatility. "This has been successful thus far. Currently, they have approximately $1tn in reserves, thus they have ammunition for this operation. We believe a move over 145 poses the danger of more yen intervention, which might cause a temporary USD drag on the complex. 140/145 seems reasonable for USDJPY at the moment. ''

The US inflation report will be a major event next week. Analysts at TD Securities predicted that the US Consumer Price Index remained robust in September, with the series showing another substantial 0.5% MoM increase. "Shelter inflation likely remained elevated, but we anticipate a dramatic decline in the price of old automobiles. Importantly, gas prices likely provided additional respite for the headline figure, falling approximately 5% month-over-month. Our MoM predictions imply 8.2%/6.6% YoY price growth for total/core goods.