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- Gold price remains sideways as investors await private labor market report
Gold price remains sideways as investors await private labor market report
- Gold price oscillates around $1,935.00 as investors shift focus to US ADP Employment data.
- US firms invite fewer applications for jobs as resignations drop.
- Investors hope that the Fed will not raise interest rates further this year.
Gold price (XAU/USD) trades directionless after a stalwart rally as investors await US ADP Employment Change data for further action. The precious metal capitalized on softer job openings data, which accelerated hopes of an unchanged interest rate decision to be taken at the September monetary policy meeting by the Federal Reserve (Fed). Employees’ declining confidence in the labor market gave comfort to Fed policymakers for keeping current interest rates at 5.25-5.50%.
Investors will keenly watch private sector employment data for August as Fed Chair Jerome Powell promised that further policy action will be data-dependent at the Jackson Hole Symposium. US ADP Employment Change has been outperforming consensus for the past four months. Weak labor demand from US private payrolls could allow Fed policymakers to discuss rate cuts sooner rather than later.
Daily Digest Market Movers: Gold price consolidates ahead of US private employment data
- Gold price consolidates in a narrow range above $1,930.00 as investors await the private payroll data for August, which will provide more details about the current labor market status.
- The precious metal struggles for a decisive move ahead of the ADP Employment Change data as it will set an undertone for the Federal Reserve’s September monetary policy.
- Investors project that fresh private sector payrolls in August were 195K, significantly lower than July’s reading of 324K. The last four reports have shown numbers significantly above market consensus.
- August labor market data carries significant importance as Fed Chair Jerome Powell conveyed at the Jackson Hole Symposium that inflation has become more responsive to the labor market.
- On Tuesday, the US Bureau of Labor Statistics reported that labor demand softened in July. Employers invited job applications for 8.827M vacancies against 9.165M job openings in June.
- Meanwhile, the number of resignations was their lowest since early 2021. This indicates that either US firms are working on retaining talent or the labor force lost confidence.
- Softening of key US job data indicates that the labor market is losing its resilience and elevates hope for the Fed’s soft landing.
- Weaker than anticipated job openings data elevated hopes of a steady interest rate decision by the Fed at the September FOMC meeting. As per the CME FedWatch Tool, there is an 86% chance of interest rates staying at 5.25-5.50%. Also, the odds of an unchanged interest rate policy at the November meeting jumped above 50%.
- If US hiring momentum slows further, the synergic effect of poor job vacancies and easing recruitment will make Fed policymakers comfortable with keeping the monetary policy unchanged this year.
- In addition to US Job Openings data, Consumer Confidence reported by the US Conference Board dropped sharply to 106.1 as fears of persistent inflation renewed.
- Investors hope that inflation in excess of the desired rate will be a hard nut to crack. Also, consumers' 12-month inflation expectations rose to 5.8% from 5.7% last month.
- Last week, Cleveland Fed Bank President Loretta Mester supported one more interest rate hike in 2023 to ensure that the goal of price stability is achieved before 2026.
- In this data-packed week, investors will shift their focus toward the Nonfarm Payrolls (NFP) data for August, which will provide an in-depth status of labor market conditions.
- Apart from the US NFP, ISM Manufacturing PMI data will also be on investors’ radar. Market participants hope that factory activities will remain below the 50.0 threshold for the ninth straight month.
- The US Dollar Index delivers a gradual recovery after an intense sell-off move to near 103.40. However, the downside bias is still solid as the Fed is expected to pause the policy tightening spell sooner.
- Meanwhile, 10-year US Treasury yields dropped to near 4.15%, indicating higher bets for a soft landing by the Fed.
Technical Analysis: Gold price trades sideways after stabilizing above $1,930
Gold price trades back and forth in a narrow range above $1,930.00 after a rally inspired by soft job openings data. After a stellar rally, the precious metal reaches near the upper portion of the Rising Channel chart pattern formed on a small time frame. The yellow metal extends its recovery above the 20 and 50-day Exponential Moving Averages (EMAs), which indicates that the mid-term trend has turned bullish.
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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