Gold Price Holds Steady Before Important US Employment Data
In continuation from our last week’s analysis on Gold which was spot on, we can see right now that the price of gold (XAU/USD) is moving sideways after a recent rise, which was driven by weaker labor demand due to a less optimistic economic outlook. This precious metal is expected to stay relatively stable as investors wait for the release of the US Nonfarm Payrolls (NFP) data on Friday (tomorrow).
On Wednesday, the US ADP Employment report indicated that the job market isn't as strong as previously believed. Companies have slowed down their hiring processes, adding to the signs of an uncertain economic future. The decrease in labor demand has raised hopes that the Federal Reserve (Fed) might ease its approach, especially since Fed Chair Jerome Powell mentioned at the Jackson Hole Symposium that inflation is now more influenced by labor market conditions.
Gold has been on a winning streak for the past three days and is predicted to continue recovering as labor demand from US companies weakens due to reduced overall demand.
The effects of higher interest rates were evident in the US ADP Employment Change data, which showed a decline in job vacancies. The August ADP report revealed that the private sector in the US added 177K employees, falling short of the expected 195K and just a fraction of July's revised figure of 371K.
The slowdown in job growth was particularly notable in the leisure and hospitality sector, where job creation in areas like hotels and restaurants decreased by 30K in August after a period of robust hiring.
Wage growth also eased in August. While those staying in their jobs experienced an annual pay growth of 5.9%, those changing jobs saw a slower growth rate of 9.5%.
Nela Richardson, the chief economist at ADP, noted that the August numbers reflect a pace of job creation similar to the period before the pandemic. She stated, "After two years of remarkable gains tied to the recovery, we are transitioning to more sustainable growth in both pay and employment as the economic effects of the pandemic diminish."
According to the CME Group FedWatch Tool, it's widely anticipated that interest rates will remain unchanged in September. Additionally, the Fed is expected to maintain rates within the range of 5.25% to 5.50% by the end of the year.
Jerome Powell, the Fed Chair, emphasised during his speech at the Jackson Hole Symposium that inflation is now more responsive to the job market. Consequently, a softer labor market could reduce the upward pressure on inflation.
Raphael Bostic, President of the Atlanta Fed Bank, suggested that the current policy is sufficiently restrictive to bring inflation to 2% over a reasonable timeframe.
After a sharp decline to near 103.00, the US Dollar is experiencing a slight rebound. Nonetheless, many investors are hopeful that the Fed's interest rates have reached their peak, which could lead to further downward movement. The 10-year US Treasury yields have moderately rebounded to 4.12%.
While higher mortgage rates are once again putting pressure on US housing demand, it seems that the most challenging phase of the housing sector's correction has passed due to limited supply.
According to property analysts surveyed by Reuters, predictions of a price drop in the housing market for this year have disappeared, indicating that the short-lived correction in the US housing market is now concluded.
Looking ahead, investors will be paying attention to the weekly Jobless Claims for the week ending on August 25, as well as the core Personal Consumption Expenditure (PCE) Price Index for July.
In conclusion, there's a belief that gold is gaining strength and might experience a potential upward breakout collecting liquidity resting above. This could be accompanied by a minor pullback before continuing its upward movement (see chart for more details).
On Wednesday, the US ADP Employment report indicated that the job market isn't as strong as previously believed. Companies have slowed down their hiring processes, adding to the signs of an uncertain economic future. The decrease in labor demand has raised hopes that the Federal Reserve (Fed) might ease its approach, especially since Fed Chair Jerome Powell mentioned at the Jackson Hole Symposium that inflation is now more influenced by labor market conditions.
Gold has been on a winning streak for the past three days and is predicted to continue recovering as labor demand from US companies weakens due to reduced overall demand.
The effects of higher interest rates were evident in the US ADP Employment Change data, which showed a decline in job vacancies. The August ADP report revealed that the private sector in the US added 177K employees, falling short of the expected 195K and just a fraction of July's revised figure of 371K.
The slowdown in job growth was particularly notable in the leisure and hospitality sector, where job creation in areas like hotels and restaurants decreased by 30K in August after a period of robust hiring.
Wage growth also eased in August. While those staying in their jobs experienced an annual pay growth of 5.9%, those changing jobs saw a slower growth rate of 9.5%.
Nela Richardson, the chief economist at ADP, noted that the August numbers reflect a pace of job creation similar to the period before the pandemic. She stated, "After two years of remarkable gains tied to the recovery, we are transitioning to more sustainable growth in both pay and employment as the economic effects of the pandemic diminish."
According to the CME Group FedWatch Tool, it's widely anticipated that interest rates will remain unchanged in September. Additionally, the Fed is expected to maintain rates within the range of 5.25% to 5.50% by the end of the year.
Jerome Powell, the Fed Chair, emphasised during his speech at the Jackson Hole Symposium that inflation is now more responsive to the job market. Consequently, a softer labor market could reduce the upward pressure on inflation.
Raphael Bostic, President of the Atlanta Fed Bank, suggested that the current policy is sufficiently restrictive to bring inflation to 2% over a reasonable timeframe.
After a sharp decline to near 103.00, the US Dollar is experiencing a slight rebound. Nonetheless, many investors are hopeful that the Fed's interest rates have reached their peak, which could lead to further downward movement. The 10-year US Treasury yields have moderately rebounded to 4.12%.
While higher mortgage rates are once again putting pressure on US housing demand, it seems that the most challenging phase of the housing sector's correction has passed due to limited supply.
According to property analysts surveyed by Reuters, predictions of a price drop in the housing market for this year have disappeared, indicating that the short-lived correction in the US housing market is now concluded.
Looking ahead, investors will be paying attention to the weekly Jobless Claims for the week ending on August 25, as well as the core Personal Consumption Expenditure (PCE) Price Index for July.
In conclusion, there's a belief that gold is gaining strength and might experience a potential upward breakout collecting liquidity resting above. This could be accompanied by a minor pullback before continuing its upward movement (see chart for more details).
