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Title: Gold Price Forecast: XAU/USD climbs to over one-week high, beyond $1,810 ahead of NFP

Feb 04, 2022 05:16AM ET

By: AnalysisWatch

Gold prices continued the strong rally that occurred overnight from the $1,790 level and gained some strength on the last day of the week. This momentum continued in the first half of European trading, propelling spot prices to a weekly high near USD 1814.

The US dollar traded near a two-and-a-half-week low, weighed down by the rise in the European Central Bank's single currency, which in turn was seen as a key factor providing some support to dollar-denominated gold. In addition, the prevailing cautious sentiment in the market is seen as another factor providing wind in the sails of the XAU/USD safe-haven. The safe-haven bias was boosted by the decline in US Treasury yields, which further weakened the dollar and benefited the low-yielding yellow metal.

However, the uptrend is likely to remain limited given the more restrictive stance of major central banks to combat persistently high inflation. On Thursday, for example, the Bank of England raised its benchmark interest rate by 25 basis points, and a breakdown of the vote showed that four of the nine members of the Economic and Monetary Affairs Committee supported an aggressive 50 basis point increase in borrowing costs. Separately, ECB President Christine Lagarde acknowledged rising inflation risks and did not repeat her earlier statement that a rate hike this year was unlikely.

Investors may also refrain from aggressive bets and prefer to wait on the sidelines ahead of the release of the highly anticipated monthly US employment data. The widely watched NFP report, which will be released later in the North American session, will have an impact on US Dollar price dynamics. This, along with US bond yields and general risk sentiment in the market, should allow traders to take advantage of some short-term opportunities in gold.

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