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XAU/USD Breaks Out as Yields Sink, Fed Pivot Hopes Build

Gold prices (XAU/USD) rallied over 1.0% on Thursday, rebounding from a lackluster performance in the preceding trading session, propelled by a significant retreat in U.S. Treasury yields following disappointing labor market data released earlier in the day.

Focusing on the catalysts, applications for unemployment benefits for the week ending November 11 rose more than projected, clocking in at 231,000 versus a forecast of 220,000. Continuing jobless claims also surprised to the upside, surging to 1,865,000, the most in nearly two years, hinting at increasing difficulty in finding employment for Americans.

Lackluster economic indicators, together with encouraging October CPI and PPI figures published yesterday and Tuesday, reinforced the view that the Federal Reserve’s tightening cycle is over and that the next move will be rate cuts. These expectations weighed on yields, sending the 10-year note below 4.45% and towards its lowest value since late September.

With the FOMC’s monetary policy outlook turning more dovish in the eyes of the market, gold could remain in an upward trajectory in the near term, especially if the U.S. dollar extends its recent downward correction. This scenario could materialize if incoming information reveals further economic weakness, as a deteriorating macro landscape may accelerate a Fed pivot.

Gold prices, measured through futures contracts, took off on Thursday, breaching a key technical ceiling stretching from $1,975 to $1,980. If this breakout is sustained, prices could start consolidating to the upside in the coming days, paving the way for a move toward $2,010/$2,015. Additional gains from here on out might embolden the bullish camp to launch an attack on $2,060.

In the event of a bearish reversal, the first line of defense against a downturn is located in the $1,980-$1,975 zone. Although bullion may establish a base in this region on a pullback, a breakdown could trigger a deeper retracement, opening the door for a drop towards cluster support in the $1,950/$1,940 range (several key moving averages converge in this area). Below this floor, the focus shifts to $1,920.

Source: DailyFX