Gold price holds recovery ahead of US NFP and Manufacturing PMI

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  • Gold price oscillates above $1,940.00 as investors await US NFP data.
  • The US ADP Employment report suggests that the NFP report could show job creation is slowing.
  • US ADP report also showed the slowest wage growth since October 2021.

Gold price (XAU/USD) finds nominal selling pressure as the Fed’s preferred inflation tool turns out persistent in July. Earlier, the yellow metal was trading sideways after a rally inspired by soft labor demand due to the deteriorating economic outlook. The precious metal is expected to remain on the sidelines as investors are likely to make an informed decision after the release of US Nonfarm Payrolls (NFP) data on Friday.

The US ADP Employment report released on Wednesday showed that the labor market is not as resilient as previously thought. Firms have slowed down their hiring process, adding to evidence of an uncertain economic outlook. Lower labor demand boosted hopes of a soft landing from the Federal Reserve (Fed) as Chair Jerome Powell conveyed at the Jackson Hole Symposium that inflation has become more responsive to labor markets.

Daily Digest Market Movers: Gold price awaits US NFP

  • Gold price faces some selling pressure as the US Personal Consumption Expenditure (PCE) price index remained sticky in July. The monthly headline and core PCE grew at a stable pace of 0.2%. Also, the annual headline and core PCE accelerated marginally to 3.3% and 4.2% as expected by market participants.
  • For the week ending August 25, individuals claiming jobless benefits dropped to 228K vs. expectations of 235K and the former reading of 232K.
  • After US PCE data, investors shift their focus to the US NFP and ISM Manufacturing PMI data for August, which will be released on Friday.
  • The precious metal continues its three-day winning spell and is expected to extend its recovery as labor demand from US firms starts softening due to deteriorating demand.
  • After fewer job vacancies, US ADP Employment Change data showed the effects of higher interest rates. The ADP report for August showed the US private sector added  177K employees,  lower than expectations of 195K and less than half of the upwardly revised July’s reading of 371K.
  • The slowdown in job growth majorly came from the leisure and hospitality sector. Job creation by hotels, restaurants, and other employers in the sector fell by 30K in August after months of strong hiring.
  • Wage growth also slowed in August. Job stayers saw an annual pay growth of 5.9%, while job changers’ pay growth slowed to 9.5%.
  • August numbers are consistent with the pace of job creation before the pandemic, said Nela Richardson, chief economist at ADP. “After two years of exceptional gains tied to the recovery, we’re moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede,” she said.
  • Fed Chair Jerome Powell conveyed in his commentary at the Jackson Hole Symposium that inflation is getting more responsive to the job market. Therefore, softening labor market conditions might ease upside risks to inflation.
  • As per the CME Group FedWatch Tool, interest rates are widely expected to remain unchanged in September. Also, the Fed is seen keeping rates steady at 5.25%-5.50% by year-end.
  • Atlanta Fed Bank President Raphael Bostic said that the policy is restrictive enough to bring inflation to 2% over a reasonable time frame.
  • The US Dollar sees a pullback move after an intense sell-off to near 103.00. However, more downside seems favored as investors hope that interest rates by the Fed have peaked. 10-year US Treasury yields rebounded moderately to 4.12%.
  • US housing demand remains under pressure as higher mortgage rates are increasing again. Still, the worst of the housing sector correction appears to have passed due to tight supply.
  • According to property analysts polled by Reuters, forecasts for a price fall this calendar year have wiped out and the short US housing market correction is now over.

Technical Analysis: Gold price continues sideways performance

Gold price continues its three-day winning spell but the upside seems restricted near $1,950.00 as investors await US NFP data to get in-depth information about labor market conditions. The precious metal gathers strength to deliver a breakout of the Rising Channel chart pattern formed on a lower time frame. The yellow metal secures stability above the 20-day and 50-day Exponential Moving Averages (EMAs), supporting more upside ahead.

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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