Divided gold market awaits jobs report

Getty Images | Digital Vision| Anthony Bradshaw

Gold markets are divided over the price direction this week and await the release of closely-watched U.S. jobs numbers on Friday to shed some light on when the Federal Reserve may cut stimulus measures, helping dictate the near-term outlook for bullion, CNBC's latest sentiment survey shows.

CNBC's latest poll of gold market sentiment showed 44 percent (8 out of 18 respondents) expect prices to gain this week, 50 percent (9 out of 18) predict price declines, giving those with a bearish view on the metal a slight edge.

Scheduled U.S. data releases culminate in the Labor Department's non-farm payroll figures for October on Friday. This week's economic indicators also include factory orders on Monday, the ISM services index on Tuesday and third-quarter gross domestic product and weekly jobless claims on Thursday. The October numbers are likely to reflect the negative impact of last month's U.S. government shutdown.

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A sub-par jobs number may suggest that the U.S. economy took a worse hit than expected due to last month's government shutdown, putting pressure on the Fed to delay stimulus cutbacks until at least early next year. Such a scenario may undermine the U.S. dollar and boost gold's allure as an alternative.

"It would be surprising if the October payroll numbers were any better than the September data, and we may very well see something a bit worse with the shutdown figures now coming into play," said Scott Carter, the chief executive officer of Los Angeles-based Lear Capital. "This should reinforce the Fed's position of continued bond buying."

The Fed's increasing balance sheet coupled with U.S. national debt of over $17 trillion and the risk of further political clashes in Washington as the next round of budget negotiations loom are making "all precious metals look quite constructive," Carter said.

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Miguel Perez-Santalla, vice president of business development at online precious metals exchange BullionVault expected the jobs data to trigger two-way price action for gold this week. "I see it going lower" pre-payrolls "but I think the number will be bad and I expect gold to rally Friday afternoon," he said.

However, many believe that the financial markets are well-aware that this week's numbers will be tainted by the shutdown and have had ample time to adjust for a poor jobs report if it does materialize on Friday.

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"I don't think that a negative number would come as a surprise unless it was bigger than projected," said Edmund Moy, Chief Strategist at Morgan Gold and a former director of the U.S. Mint. "It may have a temporary impact on increasing gold prices but will be discounted because it is seen as a singular event based on the shutdown. But if November numbers continue the trend or hover in neutral, that would have a longer impact on gold prices."

How the U.S. dollar reacts to the data this week will be important for gold and several poll respondents warned that the greenback's recovery ought to keep a firm lid on prices.

"There's a chance that gold is starting its next leg down, which coincides with the dollar's next move up," said Yoni Jacobs, chief investment strategist at Chart Prophet Capital, an equity investment fund.

The U.S. dollar index was holding firm at 80.68 having climbed to a six-week peak on Friday. The greenback may not yet be forming "a perfect bottom, but I'm definitely watching for it," Jacobs added.

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Last Thursday's Fed meeting signaled stimulus would remain intact though the central bank's outlook was perceived as less dovish than expected, helping send the dollar index to multi-week highs. Gold eased for a sixth straight session on Monday to trade near two-week lows as renewed uncertainty over when the U.S. Federal Reserve will scale back its stimulus measures weighed on sentiment.

Last week was "crazy" for the yellow metal, said Matt Fanning, CIO and Fund Manager at Fanvestments in Providence, Rhode Island. "I, as well as many, was caught off-guard with the level of hawkishness from the Fed."

Technically, if gold can hold levels around Friday's session lows of around $1,306 for the spot metal and $1,305 futures over the next few sessions it would recapture $1,333, Fanning explained. "If it cannot, $1,280 will be the next test for support."

— By CNBC's Sri Jegarajah. Follow him on Twitter: @cnbcSri