The driving force today is the softer U.S. Dollar, which fell to its lowest level since January 30, down about 0.84%. A weaker dollar tends to drive up foreign demand for dollar-denominated assets like gold. The price action in both the dollar and gold suggests growing expectations for weak economic data, especially the labor market.

Last week’s Challenger January layoffs report, the mid-week ADP private-sector hirings report, and the government’s weekly initial claims report all pointed toward a feeble jobs market. This is leading investors to expect a weak U.S. Non-Farm Payrolls report on Wednesday.

NFP Miss Could Force Fed’s Hand

According to a Reuters poll, non-farm payrolls are expected to have risen by 70,000 in January. A big miss to the downside will send investors scrambling to price in a rate cut as early as March, and that would be bad news for the dollar but good news for gold bulls. They have been on hold the past two weeks after the Fed implied at its January meeting that the focus had shifted to getting inflation under control and not labor. They felt that a premature cut in rates could boost inflation during a steady labor market period. However, a collapse in the jobs market will surely catch their eye and probably lead to increased speculation that an earlier-than-expected rate cut is forthcoming.

Providing additional support was the news that China’s central bank extended its gold-buying campaign for a 15th month in January, serving as proof that the dollar debasement trade is alive and well.

Finally, geopolitical concerns have kept a steady floor under the market to go along with China’s gold purchases. This is good for the long-term bullish foundation. Short-term, the market seems to be shedding its weaker buyers with excessive price swings, heightened volatility, and margin hikes by the CME Group. The market now looks as if it is getting ready to launch another rally, but buyers aren’t hitting offers yet without near-term catalysts. This extra confidence boost could come from Wednesday’s NFP report and/or Friday’s CPI data.

Technical Picture: Uptrend Intact, Breakout Pending