US Nonfarm Payrolls holds the key to XAU/USD’s next big move

• Gold returns to red near $4,150 on NFP Friday, confined within this week’s range.
• US Dollar sits at 17-month highs as elevated Treasury yields offset the Fed’s dovish repricing.
• Gold keeps its struggle below $4,200 amid a daily bearish RSI, while $4,100 holds.

Gold has returned to the red zone in Asia on Friday after failing several attempts to regain $4,200. Traders now eagerly await the US Nonfarm Payrolls (NFP) data for September, which could significantly alter market expectations for an October Federal Reserve (Fed) interest rate hike, having a major bearing on the US Dollar (USD) valuation and Gold’s next major move.

In the lead-up to the critical US labor market report, Gold has entered a bearish consolidation phase, shuffling between the $4,200-$4,100 range so far this week.

The non-yielding bullion is torn between energy-driven inflation risks that have sent US Treasury bond yields to multi-year highs, and receding bets on another rate hike this month along with recent dovish commentary from two key Fed policymakers.

The benchmark US 10-year Treasuries touched 5.344% on Thursday, their highest since 2002, and are currently trading near 5.25%.

Soaring global yields, a flight-to-safety bid, and broad weakness in the Euro (EUR) have helped the US Dollar (USD) perch at 17-month highs against its six major peers, limiting any upside attempts in the USD-sensitive Gold.

However, markets now price in just a 25% chance that the Fed will hike rates later this month, down sharply from about 70% seen at the start of this week, according to the CME Group’s FedWatch Tool. This dovish Fed repricing is helping Gold check the downside.

That being said, the next clear directional move in Gold hinges on the upcoming top-tier US NFP release. Markets expect the headline NFP to increase by around 90,000 in September, following an impressive 162,000 gain in August.

However, focusing just on the headline NFP print could catch traders on the wrong foot, as the number could be distorted by seasonal factors such as government hiring, etc.

Also, with persistent inflationary risks, Average Hourly Earnings could also hog the limelight to determine whether wage growth has accelerated or slowed sharply.

Hence, traders will likely focus on these two potential scenarios for trading Gold on the NFP release.

First, the bearish case: If NFP beats 100,000, with unemployment near 4.1% and wages up 0.3% or higher, markets could revive October Fed hike bets, supporting the US and Treasury yields at the expense of Gold.

Bullish scenario: But if payrolls fall below 50,000, unemployment rises toward 4.2%, and wage growth slows, an October hike could be off the table, weighing on the USD and yields and potentially triggering a Gold rebound.

In the daily chart, XAU/USD trades at $4,172.49, maintaining a bearish near-term tone as it holds beneath the 50-day simple moving average (SMA) at $4,327.30, the 100-day SMA at $4,279.39 and the 200-day SMA at $4,534.92. The clustering of these key averages above price suggests gold remains capped after its recent retreat, while the Relative Strength Index (14) around 40 hints at subdued momentum rather than an oversold extreme.

On the downside, immediate support is located at the prior close area near $4,172, with a more meaningful structural floor at the upward-sloping trend-line support around $3,999. On the topside, initial resistance aligns with the 100-day SMA at $4,279, followed by the 50-day SMA at $4,327, while the 200-day SMA at $4,535 forms a higher barrier that would need to be reclaimed to negate the current bearish bias.