Gold prices faced a significant sell-off on Tuesday, February 10th, retreating after two consecutive sessions of strong gains. The market entered a consolidation phase as investors awaited the delayed release of key US employment and inflation data to gauge the Federal Reserve's future policy direction.
Spot gold closed down $32.68, a decline of nearly 0.7%, settling at $5,025.21 per ounce. An analyst noted that while gold turned lower on Tuesday, it managed to hold above the crucial $5,000 per ounce level. Market focus has shifted to the US Non-Farm Payrolls (NFP) report for February to assess the resilience or potential further weakness in the labor market.
A metal trading director commented, "Gold is experiencing a slight pullback or consolidation ahead of a slew of key economic data releases later this week."
The US NFP data for January is scheduled for release on Wednesday, with a Reuters survey indicating economists expect an addition of 70,000 jobs. The US Consumer Price Index (CPI) for January will be published on Friday.
The trading director added that support for gold prices will continue to stem from a weaker US Dollar, geopolitical tensions, and expectations for interest rate cuts. Furthermore, the psychological $5,000 per ounce level itself provides support.
On Tuesday, the US Dollar Index (DXY), which measures the dollar against a basket of six major currencies, was flat, closing at 96.87.
Despite the flat dollar performance, concerns lingered that Wednesday's jobs data might fall short of expectations. A government official had previously stated that there was "no need to panic" over potentially lower job growth figures.
Analysts from a financial institution suggested that the Dollar Index would likely trade in the mid-range of a new 96.50-97.50 band in the coming days, taking direction from labor market data.
Adding to economic concerns, US Retail Sales for December, released on Tuesday, unexpectedly showed no growth, raising worries that consumer spending and the broader economy were on a path of slower growth entering the new year.
This weaker economic outlook has reinforced expectations for interest rate cuts. Markets are currently pricing in at least two 25-basis-point rate cuts by the Federal Reserve this year. Lower interest rates typically reduce the opportunity cost of holding non-yielding assets like gold, making them more attractive.
From a technical perspective, gold prices continue to fluctuate within a range of $5,000 to $5,100 per ounce. Traders have been unable to decisively break the top or bottom of this range and are awaiting a new catalyst. The Relative Strength Index (RSI), while still in bullish territory, is moving towards neutral levels, indicating that sellers are currently capping upward momentum for the price.
The analysis suggests that if gold manages to break above $5,100 per ounce, it could pave the way for a move towards $5,200, with a potential subsequent test of the January 30th high of $5,451 and eventually the record high near $5,600.
Conversely, a break below the $5,000 support level could lead to a test of the 20-day Simple Moving Average (SMA) around $4,910, followed by a potential decline towards $4,800, and ultimately a target near the February 2nd low of $4,402.