• Gold is now in the balance of the NFP numbers on Friday.
  • The market is taking into consideration a more hawkish tilt at the Fed.
  • Technically, the price is at a critical juncture and a breakout could be imminent one way or the other.

Update: Gold prices extend the previous session’s decline on Friday and trade with substantial losses. The prices remain on the verge to break the broader trading range of $1,810 and $1,830 amid the solid recovery of the greenback. The US Dollar Index trades near the weekly tops around 92.30. The move is primarily driven by the hawkish comments from US Federal Reserve Vice Chair Richard Clarida, who said given the conditions for an interest rate hike could be met in late 2022 or early 2023. The higher interest rates raise the opportunity cost of holding non-interest yielding gold. The higher USD valuations make gold more expensive for holders of other currencies. The downside in the precious metal is capped on the assumptions of the uneven global economic recovery due to the rapid increase in the delta variant.  

At the time of writing, the price of gold is back above the psychological $1,800 level at $1,804.60, albeit still down by 0.40%.

The price has fallen on the data from a high of $1,814.92 to a low of $1,797.90. 

The dollar hit eight-day highs on Thursday after hawkish remarks from senior US Federal Reserve officials at the same time that investors are focused on whether some of that stimulus could be rolled back.

Following the disappointing US ADP job numbers on Wednesday, gold had a knee-jerk response, jumping to $1,831 amid falling yields, but was unable to sustain these gains after further hawkish comments from Fred officials.

 Last Friday, it was James Bullard.  Early this week, it was Fed's, Christopher Waller.  

Yesterday, it was Vice-Chair Clarida who is usually more dovish, which made his comments and twist of tone very important ahead of this week's Nonfarm Payrolls data.. 

 “If my baseline outlook does materialize, then I could certainly see supporting announcing a reduction in our purchases later this year,” Clarida said.

The “necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022,”  he added arguing that the inflation outlook risks are to the upside. 

 ''He rarely dissents from the Fed's chairman, Jerome Powell, and so we view this as a sign that the Fed Chair is also moving in this direction,'' analysts at Brown Brothers Harriman said. 

Meanwhile, Dallas Fed President Robert Kaplan argued that the taper of the Fed's bond purchases should start soon and be gradual.

“As long as we continue to make progress in July (jobs) numbers and in August jobs numbers, I think we’d be better off to start adjusting these purchases soon.”

''For those keeping score at home, we now have Bullard, Waller, Clarida, Kaplan, and Evans pretty much on board with tapering in 2021 and rate hikes by late 2022 or early 2023.  More Fed officials will likely move into this came in the coming weeks, though this is of course data-dependent,'' that analysts at BBH, who are bullish on the US dollar, said.

Meanwhile, speculators have demonstrated little appetite for the yellow metal, even at times of risk-on and US dollar weakness.

''This is despite the Fed's Flexible Average Inflation Targeting which argues that capital should seek shelter in gold as a store of value against a prolonged period of negative real rates,'' analysts at TD Securities noted.

''Melting real rates are also failing to inspire a speculative boost to the precious metals complex.''

Gold's technical microstructure (see below) is pointing to vulnerabilities.

Eyes on NFP

Still, the gravitational pull of real rates is keeping the yellow metal supported in familiar ranges, for now, while we await the next catalyst in tomorrow's NFP report.

ADP jobs report suggests some caution is warranted, however.  

ADP missed by a mile at 330k vs. 690k and a revised 680k (was 692k) in June.

The consensus for the NFP is at 870k jobs added vs. 850k in June.  

US Jobless Claims data have been erratic lately, increasing the risk of a big NFP miss on Friday, the analysts at BBH argued. 

However, a stronger payrolls print should underpin the bullish tone in the greenback that is attempting to correct deeper into the prior bearish trend:

At the time of writing, the dollar was steady at 92.200 against an index of currencies USD after hitting an eight-day high of 92.352.

While above 92.20, it can continue to make moderate ginas, especially at the expense of currencies with dovish central banks, such as the EUR/USD which makes up the majority of the index. 

Gold still can't catch a bid

When taking into consideration the fears of a spreading delta variant across the globe, stagflation is a major risk considering the supply-side inflationary forces despite consumer consumption. 

Yet, as analysts at TD Securities note, ''gold still can't catch much of a bid.''

''With downside momentum gaining steam, modest CTA selling flow has kept some pressure on price action nonetheless,'' the analysts said.

''Yet, prices are now flirting with the threshold for a whipsaw, which could put a halt to the selling flow. However, TD Securities' forecast for a strong beat on this week's non-farm payroll data could add further momentum to the downside.'' 

Gold technical analysis

The weekly chart above shows that the price is at a critical long-term juncture and bulls need to get over the line soon if they want to prevent the bears from taking advantage of the lack of commitments at the dynamic trendline support.

Breaks of trendlines can often lead to a prolonged breakout. 

Meanwhile, from a daily perspective, for the immediate future, if the NFP data underwhelms, then a break of $1,834 could seal the deal for the bulls.

First off, the bulls need to break the 21-DMA and the neckline of the M formation at 1,811.

On the other hand, the downside is compelling.

If the data prove that the US vaccinations are bringing life back to the jobs sector at a faster rate than imagined, on USD strength, then a break of $1,790 will embed a lower for longer gold price outlook towards the $1,730s. 

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