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- Gold price gathers strength for further upside ahead of US labor market data
Gold price gathers strength for further upside ahead of US labor market data
- Gold price aims to sustain above $1,920.00 as pressure builds on US Dollar and Treasury yields.
- Fed’s September policy action will be highly guided by August labor market data.
- US Raimondo and China’s Wang Yi agree to launch a platform on export control information.
Gold price (XAU/USD) gathers strength to extend its recovery above $1,920 as the Federal Reserve (Fed) holds economic indicators accountable for further policy action. Jerome Powell reiterated at the Jackson Hole Symposium that the central bank will remain data-dependent. Powell added that inflation has become more responsive to the labor market, so upcoming JOLTS and other job-market-related data later this week are set to be crucial to determine the Fed’s next steps. .
US employment and ISM Manufacturing PMI data will remain on investors’ radar. The weightage of August labor market data is expected to remain high as it will provide a base for September’s interest rate decision. Investors hope that hiring momentum slows as US firms are banking on lower operating capacity due to a delicate economic outlook. Also, factory activity is expected to contract for the ninth straight month.
Daily Digest Market Movers: Gold price shifts focus to labor market data
- Gold price aims for a confident auction shift above $1,920.00 as investors gung-ho for value-buying, knowing that interest rates by the Federal Reserve are not far from peaking.
- The recovery move in the Gold price is also backed by a subdued US Dollar and declining US Treasury Yields. The US Dollar Index (DXY) struggles to climb above 104.00, while 10-year US bond yields drop to near 4.18%.
- The US Dollar comes under pressure as Fed Chair Jerome Powell reiterated at the Jackson Hole Symposium that further policy action will depend on economic data.
- Jerome Powell kept doors open for further policy tightening as the achievement of price stability has a long way to go. Two months of lower inflation levels is just the beginning of what the central bank wants to build.
- Cleveland Fed Bank President Loretta Mester supported one more interest rate hike in 2023 this week to ensure that the goal of price stability is achieved before 2026.
- After the hawkish Powell commentary, investors shifted focus to the Automatic Data Processing (ADP) Employment Change data for August, which will be published on Wednesday at 12:15 GMT.
- The central bank has evidence that inflation is getting more responsive to labor markets. Powell said that further signs of a tightening job market could warrant more Fed action.
- Powell’s commentary about the job market has increased the significance of August employment data as it will provide a base for September’s monetary policy.
- For the ADP data release, the US private sector is expected to have added 195K jobs in August, significantly lower than July’s reading of 324K.
- Before US ADP Employment data, investors will focus on JOLTS Job Openings for July, which will be released at 14:00 GMT. As per estimates, US firms posted fresh 9.465M vacancies, lower than June’s job openings figure of 9.582M.
- Apart from the labor market data, investors will also keep the ISM Manufacturing PMI data for August on their radar, which will be released on Friday.
- US factory activity is expected to contract for a ninth consecutive month, according to estimates. The ISM Manufacturing PMI is seen at 47.0, slightly higher than July’s reading of 46.4. Still, a figure below the 50.0 threshold signals a contraction in activity. The New Orders Index, a widely followed leading indicator, is expected to drop to 46.3 from 47.3.
- On Monday, the Texas Manufacturing Outlook Survey reported that a key measure of state manufacturing conditions fell six points to -11.2, its lowest level since May 2020.
- Investors are keenly focusing on US Commerce Secretary Gina Raimondo's visit to China. Raimondo said the administration is aware of challenges and optimistic about US-China ties.
- Raimondo and China’s Foreign Minister Wang Yi agreed to launch a platform on export control information.
Technical Analysis: Gold price climbs above $1,920
Gold price looks confident above $1,920.00 as value-buying kicked in on hopes that the interest-rate peak is near. The precious metal climbs above the 20- and 200-day Exponential Moving Average (EMA), which indicates a solid recovery attempt. In spite of this revival move, the yellow metal has to pass through some more filters for a sustained reversal.
Central banks FAQs
What does a central bank do?
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
What does a central bank do when inflation undershoots or overshoots its projected target?
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
Who decides on monetary policy and interest rates?
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Is there a president or head of a central bank?
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
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