The gold price is $3,600, and the offensive and defensive war is heating up! Interest rate cut expectations VS technical overbought warnings

Spot gold entered a bullish consolidation phase during the Asia-Europe session on Monday (September 8). It fluctuated narrowly below the historical high of $3,600 and is currently trading around $3,595.46/ounce. Due to the technical overbought signal, gold prices may need to undergo a period of consolidation to start a new round of rising prices. After the disappointing US non-farm payrolls report was released on Friday, the dollar rallied slightly from its lowest point since July 28, becoming a key factor in restraining gold's upside. In addition, the general optimism in global stock markets also limited the gains of safe-haven precious metals.

However, with weaker-than-expected US non-farm payrolls data reinforcing expectations of a more aggressive rate cut by the Federal Reserve, continued dollar strength looks elusive.

More importantly, central banks are maintaining net gold purchases even at current prices. This could continue to support the price, but overbuying could dampen the willingness of bulls to build long positions ahead of this week's US inflation data.

Gold bulls are taking a breather against the backdrop of a modest recovery in the dollar and weaker safe-haven demand

The U.S. nonfarm payrolls report released on Friday showed that the economy added just 22,000 jobs in August, significantly below market expectations. In addition, revisions to previous data showed that 13,000 jobs were lost in June, the first monthly decline since December 2020, indicating that U.S. labor market conditions are deteriorating.

Further details showed the unemployment rate edging up to 4.3 per cent as expected from 4.2 per cent in July, while the labour force participation rate edged up to 62.3 per cent from 62.2 per cent. Finally, annual wage inflation, measured by changes in average hourly earnings, fell to 3.7 per cent in August from 3.9 per cent in July.

Markets reacted swiftly and are now weighing up the small likelihood of the Federal Reserve making a major interest rate cut in September. In addition, market participants believe that the Federal Reserve is more likely to reduce borrowing costs three times before the end of the year, which in turn pushed gold prices to a record high of $3,599.91 on Friday.

The dollar started the week well, partially recouping losses following the non-farm payroll data. In addition to this, optimistic market sentiment weighed on safe-haven precious metals at the start of the new week.

Markets are now looking forward to the latest U.S. inflation data later this week in search of fresh momentum.

technical analysis

From the daily chart, the RSI continues to be above the 70 overbought line, indicating that it is currently overbought, and gold prices may need to undergo a period of consolidation to start a new round of rising prices.

However, any pullback movement is more likely to attract new buying around $3,545, which should help limit downside space to around the $3,510-3,500 area. An effective break below this support area could push gold prices downwards to test the previous range resistance transformation support (around $3,440), which is expected to form a solid short-term bottom support.

(Daily chart of spot gold, source: Internet)

At 14:48 Beijing time, spot gold was quoted at $3596.32 per ounce.