Gold continues to fluctuate—can Nonfarm Payrolls Night bring a turning point?

　　Written by: Senior Analyst at Jarratt Group, Jerry Chen

　　On the eve of the non-farm payroll data release, the Nasdaq index pulled back from its highs for two consecutive days, while gold continued to fluctuate.

　　After Broadcom (AVGO) reported earnings below expectations, its stock price plunged 12.6%, causing a widespread decline in chip stocks, which dragged the Nasdaq index lower for the second straight day from its highs. However, the Nasdaq index rebounded intraday, the S&P 500 closed higher overnight, and the Dow Jones even hit a new all-time high, indicating that overall market sentiment wasn't too bad.

　　Buying the dip? Attention should still be paid to geopolitical tensions and the impact of SpaceX's IPO on market liquidity.

　　On the news front, Hezbollah militia on Thursday rejected the ceasefire agreement between Israel and Lebanon, and Israel stated it would not withdraw its troops from Lebanon. The situation in the Middle East encountered another setback, casting a shadow over the prospects for peace between the US and Iran.

　　During early Friday trading, oil prices rebounded slightly, the US dollar index remained strong, while gold and Asia-Pacific stock markets generally declined.

　　Focus on the US May Non-Farm Payroll Report (20:30) this Friday.

　　From the employment data released earlier this week, geopolitical risks have not yet had a substantial impact on employment, and the labor market remains generally solid—even better than at the end of last year.

　　· Ratio of April job openings/unemployed rose to a near one-year high of 1.03 (see chart below), meaning there are currently more job openings than unemployed people

　　· ADP employment in May increased by 122,000, higher than both expectations and the previous reading

　　· However, initial jobless claims last week unexpectedly rose to 225,000, exceeding both the forecast and previous figure

　　The market expects an increase of 85,000 jobs this time, down from the prior 115,000, and the unemployment rate is expected to remain at 4.3%. If the jobs report beats expectations, the Federal Reserve may be able to focus more on tackling inflation risks, further raising rate hike expectations—thereby supporting the US dollar index, but it also poses a challenge for the new Fed Chair. Conversely, if the data falls short of expectations, the dollar could come under pressure and pull back, while gold might find support near its 200-day moving average.

　　If the jobs report is mixed, the unemployment rate should have a higher influence, as this is the economic metric the Fed follows more closely. If the unemployment rate rises to 4.4% or higher, it could dampen the current optimism in the market.

　　XAUUSD Gold 4-Hour Chart

　　Due to the continued strength of the dollar, gold extended its downward trend this week, inching ever closer to the critical support of the 200-day moving average.

　　As the chart shows from the 4-hour structure, momentum continues shifting lower, and there is no obvious sign of a bottom for now. It remains bearish below 4510, and a break below 4430 (200-day moving average) could open the way for further losses towards the 4320/70 region.

　　As the chart shows, on the upside, the 4580 level is a strong resistance that will be difficult to break in the short term. Traders need to patiently wait for catalysts to drive a rebound, such as a much worse-than-expected non-farm payroll tonight, or a potential US-Iran peace agreement.

　　Implied overnight gold volatility in the options market is only 16%, which is relatively low, possibly signaling that significant moves in gold are unlikely on the night of the non-farm data.

Editor: Zhu Henan