TradingKey - As of the Asian session on October 8, gold prices (XAUUSD) maintained a weak rebound trend today, with the latest price trading around $4,120; yesterday, gold prices briefly fell below $4,100 intraday, dropping to a low of $4,066.35. Price action indicates that bearish sentiment clearly dominates the market, and gold prices may continue to fall in the short term.

Nonfarm Payrolls Slow Sharply, But Gold Rebound Remains Capped by US Treasury Yields

Data released by the U.S. Bureau of Labor Statistics on October 2 showed that U.S. nonfarm payrolls increased by only 29,000 in September, significantly below market expectations of 90,000. The unemployment rate rose from 4.1% to 4.2%, while average hourly earnings grew by just 0.1% month-over-month, with year-over-year growth slowing to 3.0%. Meanwhile, job gains for July and August were revised down by a combined 60,000, indicating a continued cooling in U.S. labor market hiring activity.

The weak employment data reduced market expectations for the Federal Reserve to continue raising interest rates in the near term. Following the nonfarm payrolls release, the U.S. dollar and Treasury yields briefly pulled back, while gold ticked up temporarily. However, gold prices subsequently came under pressure again, indicating that the interest rate tailwind from the employment data was not yet sufficient to reverse the recent downward trend.

Analysts noted that while slowing employment growth alleviated pressure on the Fed to hike rates further, U.S. inflation risks persist. The latest FOMC September meeting minutes showed that officials differed on the specific rationales for rate hikes, but most policymakers remained focused on the risk of stubbornly high inflation. Meanwhile, rising energy prices stoked inflation concerns, pushing the 10-year U.S. Treasury yield back toward 5.3%, while the U.S. Dollar Index remained near 18-month highs.

According to the latest market pricing, the probability of another Fed rate hike in October has fallen to 18.8%, but the probability of a hike in December remains close to 80%. This implies that while the market has lowered near-term rate hike expectations, it has not fully ruled out the possibility of further monetary policy tightening by the end of the year.

For gold, the weak nonfarm payrolls data provided some fundamental support, but whether a sustained rebound can follow still depends on whether the dollar and Treasury yields retreat. If the labor market continues to cool while inflationary pressures ease, gold prices are expected to gain further support; conversely, if energy prices continue to push up inflation expectations, the high-interest-rate environment could still cap gold's upside.

Gold Price Technical Analysis

Gold Price Daily Chart, Source: TradingView

Looking at the daily chart, gold prices briefly dipped below $4,100 during intraday trading yesterday but still closed firmly above $4,100, indicating a degree of support at this level that helped drive a modest rebound today. However, no clear trend reversal signal has formed yet, and gold remains in a low-level consolidation phase in the short term.

At present, as gold prices broke below the September 28 low of $4,110, further downside room has opened up. The primary target on the downside will be testing the $4,000 mark. If this level fails to hold, gold prices could slide further toward around $3,940.

On the upside, short-term resistance is noted near $4,140. If gold prices can break and hold above this level, they may rebound to test the $4,170 resistance level, followed by the $4,200 mark. Only when gold prices reclaim and hold above $4,200 will greater upside room be unlocked.

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