Finance

Gold retreats despite less friendly NFP report boosts Fed pause bets

9 months ago
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  • Gold price faces pressure as marginally weak US NFP and higher manufacturing PMI
  • The US jobless rate rose to 3.8%. Fresh payrolls were 187k, outperformed expectations.
  • ISM Manufacturing PMI data for August outperformed expectations of 46.3, landing at 46.8 but remained lower than the former reading.

Gold price (XAU/USD) faces some selling pressure as ISM Manufacturing PMI data for August, outperformed estimates and July’s reading. US factory activities rose to 47.6 vs. expectations of 47.0 and the former release of 46.4. New Orders also outperformed expectations, landing at 46.8 vs. estimates of 46.3 but lower than July’s print of 47.3. Manufacturing PMI remains below the 50.0 threshold suggesting a contraction in activity, straight for the ninth month.

Earlier, Gold price climbed swiftly above the crucial resistance of $1,950.00 as the US Bureau of Labor Statistics reported that the Unemployment Rate for August jumped sharply to 3.8% against estimates and the former release of 3.5%. Fresh Nonfarm Payrolls (NFP) were 187K, higher than expectations of 170K and July’s reading of 157K. Wage growth continues to expand but at a slower growth rate.

A mixed US NFP report has set a negative undertone for the Federal Reserve’s (Fed) interest-rate decision to be taken on September 20. Fed Chair Jerome Powell at the Jackson Hole Symposium that further policy action will depend on incoming data and cited that inflation has become more responsive to the job market.

The precious metal struggles for a decisive move as investors wait for a clear picture of labor market conditions for making an informed trade. The US ADP Employment Change report released on Wednesday suggested that labor demand softened and wage growth momentum slowed in August. Firms appear to be reluctant to expand their labor force to avoid excess production due to a deteriorating demand outlook.

Daily Digest Market Movers: Gold price witnesses profit-booking as factory activities outperform

  • Gold price climbed strongly above $1,950.00 as the US jobless rate rose to 3.8% in August while investors projected the Unemployment Rate at 3.5%.
  • In August, US employers hired 187K job seekers, higher than expectations of 170K and July’s reading of 157K. 
  • Average Hourly Earnings expanded at a slower pace of 0.2% than the expected pace of 0.3%. In July, the labor cost index grew by 0.4%. Annual economic data decelerated nominally to 4.3% against the consensus and the former print of 4.4%.
  • Rising jobless rate and easing wage growth could allow the Federal Reserve to keep interest rates unchanged at 5.25-5.50%.
  • Earlier, the upside remained restricted around $1,950.00 due to stubborn Personal Consumption Expenditure (PCE) Price Index data, while the downside remains supported near $1,940.00 inspired by soft labor demand.
  • The precious metal is expected to deliver a power-pack action after the release of the US Nonfarm Payrolls data, which will be published at 12:30 GMT.
  • Gold price traded inside Wednesday’s price range on Thursday as the impact of the soft ADP Employment report was offset by still-high numbers from the Federal Reserve’s preferred inflation tool, the PCE Price Index.
  • The US 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%, respectively, as expected by market participants.
  • Meanwhile, the US labor market is delivering mixed cues. ADP Employment report for August suggested lower employment creation, while Jobless Claims for the week ending August 25 were lower.
  • The US Department of Labor reported that individuals claiming jobless benefits dropped to 228K, less than the 235K expected and the former reading of 232K.
  • 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.
  • A 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%.
  • Going forward, investors will keep focus on the NFP data as Fed Chair Jerome Powell said that further policy action will be data-dependent and inflation is getting more responsive to the job market.
  • US employers are expected to have added 170K labor employees in August, a decline from July’s reading of 187K. The Unemployment Rate is seen unchanged at 3.5%.
  • Apart from the job market data, investors will focus on the Average Hourly Earnings. Labor costs are expected to grow 0.3% on the month, slowing from the 0.4% increase seen in July. On an annual basis, growth in Average Hourly Earnings is seen unchanged at 4.4%.
  • Strong wage growth has been a major catalyst behind stubborn inflationary pressures. US households’ spending remains solid due to higher disposable income.
  • As per the CME Fedwatch Tool, expectations for a steady interest rate policy in September and November rose to 93% and 63% respectively.

Technical Analysis: Gold price finds selling pressure near $1,950

Gold price discovers selling interest near the $1,950.00 resistance on mixed labor market data and outperforming Manufacturing PMI. The precious metal oscillates near the upper portion of the Rising Channel chart pattern formed on a small term frame. The yellow metal stabilizes above the 20- and 50-day Exponential Moving Averages (EMAs), which indicates that the mid-term trend has turned positive.

The Relative Strength Index (RSI) climbs to near 60.00. A decisive break into the range of 60.00-80.00 will likely activate the bullish impulse. 

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.

Source: https://www.fxstreet.com/news/gold-price-consolidates-ahead-of-key-labor-market-factory-activity-data-202309010940