- Gold price continues to draw support from dovish Fed-inspired USD selling bias.
- Worries about a US economic downturn further underpin the safe-haven metal.
- Bulls seem reluctant ahead of the release of the key US Nonfarm Payrolls report.
Gold price (XAU/USD) attracts some buyers for the third straight day on Friday and trades near the weekly peak heading into the European session. The uptick, however, lacks bullish conviction as investors opt to wait for the release of the crucial US Nonfarm Payrolls (NFP) report before placing fresh directional bets. In the meantime, rising bets for a larger interest rate cut by the Federal Reserve (Fed) in September exert downward pressure on the US Dollar (USD) for the third straight day and offer some support to the non-yielding yellow metal.
Meanwhile, a mixed bag of employment data released from the United States (US) this week suggested that the labor market was losing steam and fueled concerns about the health of the economy. This, along with persistent geopolitical tensions, tempers investors' appetite for riskier assets and turns out to be another factor acting as a tailwind for the safe-haven Gold price. That said, it will be prudent to wait for some follow-through buying before positioning for an extension of a two-day-old uptrend ahead of the key US macro data risk.
Daily Digest Market Movers: Gold price holds ground on Fed rate-cut hopes, lower US bond yields, weaker USD
- The ADP National Employment Report published on Thursday showed that US private-sector employment rose 99,000 in August, marking the smallest gain since January 2021.
- The reading was well below the market expectation of 145,000 and was accompanied by a downward revision of the previous month's print to 111,000 from 122,000 originally estimated.
- This comes on top of a report on Wednesday showing that job openings fell to 7.673 million, or a three-and-a-half-year low in July and provided further evidence of a deteriorating labor market.
- The Institute for Supply Management's (ISM) Services PMI inched up from 51.4 to 51.5 in August, while the Prices Paid Index rose to 57.3 from 57 and the Employment Index declined to 50.2 from 51.1.
- Separately, the US Department of Labor (DoL) reported that Initial Jobless Claims declined more than anticipated, to 227K in the week ending August 31 from the previous weekly figure of 232K.
- San Francisco Fed President Mary Daly said that the US central bank must calibrate policy to the evolving economy and cut policy rates because inflation is falling and the economy is slowing.
- Chicago Fed President Austan Goolsbee said on Friday that the longer-run trend of the labor market and inflation data justify easing interest-rate policy soon and then steadily over the next year.
- According to the CME Group's FedWatch Tool, the markets are pricing in a 40% chance that the Fed will lower borrowing costs by 50 basis points at the September 17-18 monetary policy meeting.
- Dovish expectations, meanwhile, keep the US Treasury bond yields depressed and the US Dollar bulls on the defensive, which, in turn, should act as a tailwind for the non-yielding gold price.
- The market focus now shifts to the crucial US Nonfarm Payrolls (NFP) report, which is expected to show that the economy added 160K jobs in August and the Unemployment Rate ticked lower to 4.2%.
Technical Analysis: Gold price could climb to fresh all-time peak once $2,524-2,525 hurdle is cleared decisively
From a technical perspective, momentum beyond the $2,524-2,525 immediate hurdle will be seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart are holding in positive territory and are still away from being in the overbought zone. This, in turn, suggests that the path of least resistance for the Gold price is to the upside. Some follow-through buying beyond the all-time peak, around the $2,531-2,532 area touched on August 20, will reaffirm the constructive outlook and pave the way for a further appreciating move.
On the flip side, the $2,500 psychological mark now seems to protect the immediate downside below which the Gold price could slide back to the $2,471-2,470 horizontal support. A convincing break below the latter will set the stage for deeper losses towards the 50-day Simple Moving Average (SMA), currently pegged near the $2,440 region, en route to the $2,400 mark and the 100-day SMA, around the $2,388 zone.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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