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- Gold price consolidates ahead of key US employment data
Gold price consolidates ahead of key US employment data
- Gold price oscillates above $1,940.00 as investors await US NFP data.
- The US ADP Employment report suggests that the NFP report could show job creation is slowing.
- US ADP report also showed the slowest wage growth since October 2021.
Gold price (XAU/USD) trades sideways after a rally inspired by soft labor demand due to the deteriorating economic outlook. The precious metal is expected to remain on the sidelines as investors are likely to make an informed decision after the release of US Nonfarm Payrolls (NFP) data on Friday.
The US ADP Employment report released on Wednesday showed that the labor market is not as resilient as previously thought. Firms have slowed down their hiring process, adding to evidence of an uncertain economic outlook. Lower labor demand boosted hopes of a soft landing from the Federal Reserve (Fed) as Chair Jerome Powell conveyed at the Jackson Hole Symposium that inflation has become more responsive to labor markets.
Daily Digest Market Movers: Gold price turns sideways ahead of US NFP
- Gold price turns rangebound, near a four-week high, after ensuring stability above $1,940.00 as investors await US NFP and ISM Manufacturing PMI data for August, which will be released on Friday.
- The precious metal continues its three-day winning spell and is expected to extend its recovery as labor demand from US firms starts softening due to deteriorating demand.
- After fewer job vacancies, US ADP Employment Change data showed the effects of higher interest rates. 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.
- The 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%.
- August numbers are consistent with the pace of job creation before the pandemic, said Nela Richardson, chief economist at ADP. “After two years of exceptional gains tied to the recovery, we're moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede,” she said.
- Fed Chair Jerome Powell conveyed in his commentary at the Jackson Hole Symposium that inflation is getting more responsive to the job market. Therefore, softening labor market conditions might ease upside risks to inflation.
- As per the CME Group FedWatch Tool, interest rates are widely expected to remain unchanged in September. Also, the Fed is seen keeping rates steady at 5.25%-5.50% by year-end.
- Atlanta Fed Bank President Raphael Bostic said that the policy is restrictive enough to bring inflation to 2% over a reasonable time frame.
- The US Dollar sees a pullback move after an intense sell-off to near 103.00. However, more downside seems favored as investors hope that interest rates by the Fed have peaked. 10-year US Treasury yields rebounded moderately to 4.12%.
- US housing demand remains under pressure as higher mortgage rates are increasing again. Still, the worst of the housing sector correction appears to have passed due to tight supply.
- According to property analysts polled by Reuters, forecasts for a price fall this calendar year have wiped out and the short US housing market correction is now over.
- Going forward, investors will focus on the weekly Jobless Claims for the week ending August 25 and the core Personal Consumption Expenditure (PCE) Price Index for July.
- Monthly core PCE inflation is expected to grow at a steady 0.2% pace, while the annual reading is seen accelerating to 4.2%.
Technical Analysis: Gold price upside seems restricted near $1,950.00
Gold price continues its three-day winning spell but the upside seems restricted near $1,950.00 as investors await US NFP data to get in-depth information about labor market conditions. The precious metal gathers strength to deliver a breakout of the Rising Channel chart pattern formed on a lower time frame. The yellow metal secures stability above the 20-day and 50-day Exponential Moving Averages (EMAs), supporting more upside ahead.
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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