Gold retreats despite soft US Employment, Services PMI report

Gold price eyes a recovery after a long sell-off due to soft US ADP Employment Change data.
Job vacancies by US employers were upbeat in August, portraying strong labor demand.
US Services PMI landed dropped to 53.6 as expected. New Orders were down significantly.

Gold price (XAU/USD) didn't find buying interest despite the downbeat United States labor market and soft ISM Services PMI data. The US Automatic Data Processing (ADP) has reported a sharp decline in the hiring of private payrolls for September. US employers picked 89k fresh talent from the market against expectations of 153k and August's reading of 177k. This indicates a soft labor demand that will set a neutral undertone for the Federal Reserve’s (Fed) November monetary policy. The broader outlook for the precious metal could improve as Fed policymakers may turn neutral ahead.

The Institute of Supply Management (ISM) has reported the Services PMI data at 53.6 as expected, lower than the August reading of 54.5. New Orders dropped significantly to 51.8 against the former release of 57.5. The Services PMI data carries a significant impact on the US Dollar Index as it represents the service sector, which accounts for two-thirds of the US economy. The US Dollar rebounds after correcting to near 106.60 as the economic outlook is broadly upbeat.

Daily Digest Market Movers: Gold price remains vulnerable despite soft US data

Gold price aims for a recovery as the US ADP has reported weaker-than-anticipated Employment Change data for September. The hiring process was slower as firms expected demand to decline in domestic and overseas markets.
On Tuesday, the precious metal also attempted a recovery near $1,820.00 but failed to capitalize on the same due to hawkish interest rate guidance from Federal Reserve policymakers and upbeat JOLTS Job Opening data.
The US Bureau of Labor Statistics reported fresh job vacancies at 9.61 million against expectations of 8.8 million. Higher job postings by US employers signify healthy labor demand.
Cleveland Fed Bank President Loretta Mester reiterated hawkish guidance on the interest rate outlook on Tuesday. Mester said that she is open to hiking interest rates further in the November monetary policy meeting if the economy remains resilient the way it has been. She acknowledged that costly long-term Treasury yields could reshape the monetary policy outlook.
On Monday, Fed Mester said that one more interest rate hike is well-needed this year and that they are required to remain high for a longer period.
Contrary to Mester, Atlanta Fed Bank President Raphael Bostic said, “There is no urgency for the Fed to raise interest rates further” but that interest rates must remain higher for a longer time before a rate cut.
About the rate cuts and inflation outlook, Raphael Bostic said that one rate cut could be announced in late 2024 and the core inflation would come down to 2% near the end of 2025.
The US Dollar selling pressure after refreshing its 11-month high near 107.20 after poor labor market data, which could set a neutral undertone for the interest rate outlook.
The broader outlook of the US Dollar is positive as the US economy is resilient, unlike other economies that are struggling to cope with the consequences of higher interest rates by central bankers. The 10-year US Treasury yield jumped to a multi-year high at 4.85%.
US Treasury Secretary Janet Yellen remained optimistic about the US economic outlook, adding that inflation is coming down in the short term and the labor market is extremely strong.

Technical Analysis: Gold price eyes downside below $1,820

Gold price struggles for a direction, trading near $1,820.00 after an intense sell-off as investors shift their focus to the US labor market data for further guidance. The precious metal remains in the bearish territory and more downside is in the pipeline as the 50 and 200-day Exponential Moving Averages (EMAs) are on the verge of a Death Cross. The yellow metal is expected to find a cushion near the crucial support around $1,800.00.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

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.

How often does the Fed hold monetary policy meetings?

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.

What is Quantitative Easing (QE) and how does it impact USD?

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.

What is Quantitative Tightening (QT) and how does it impact 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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