Gold price (XAU/USD) dived to a near seven-month low on Tuesday and recorded losses for the seventh straight day – its longest losing streak since August 2022. The yellow metal found some support near the $1,815 region, though it struggled to gain any meaningful traction and remained on the defensive through the Asian session on Wednesday. The fundamental backdrop, meanwhile, seems tilted in favour of bearish traders and supports prospects for an extension of the recent downfall witnessed over the past two weeks or so.
Investors seem convinced that the Federal Reserve (Fed) will keep interest rates higher for longer, which, in turn, might continue to act as a headwind for the non-yielding Gold price. The expectations were reaffirmed by the Job Openings and Labor Turnover Survey, or JOLTS report, on Tuesday, which showed that job openings in the United States (US) unexpectedly rose in August amid a surge in demand for workers and pointed to a still-tight labour market. This comes on top of a rise in consumer spending and brings wage inflation back on the agenda.
This might force the Fed to stick to its hawkish stance and possibly extend the rate-hiking cycle into 2024. The outlook remains supportive of elevated US Treasury bond yields and continues to underpin the US Dollar (USD), suggesting that the path of least resistance for the Gold price is to the downside. That said, oversold conditions on the daily chart and the prevalent risk-off mood could limit losses for the safe-haven XAU/USD. Traders now look to the US ADP report and ISM Services PMI for some impetus ahead of the US NFP report on Friday.
The Relative Strength Index (RSI) on the daily chart is flashing extremely oversold conditions and makes it prudent to wait for some near-term consolidation or a modest bounce before positioning for a further depreciating move. The lack of firm buying interest, meanwhile, suggests that the path of least resistance for the Gold price is to the downside. Hence, a slide below the $1,815 level, or a multi-month low set on Tuesday, leaning towards challenging the $1,800 round figure, looks like a distinct possibility. Some follow-through selling will expose the next relevant support near the $1,770-1,760 region. On the flip side, any recovery attempt might confront stiff resistance and remain capped near the $1,830-1,832 horizontal zone. A sustained strength beyond, however, might trigger a short-covering rally and lift the yellow metal to the $1,850 hurdle en route to the $1,858-1,860 strong barrier.
The Employment Change released by the Automatic Data Processing, Inc, Inc is a measure of the change in the number of employed people in the US. Generally speaking, a rise in this indicator has positive implications for consumer spending, stimulating economic growth. So a high reading is traditionally seen as positive, or bullish for the USD, while a low reading is seen as negative, or bearish.
Read more.Next release: 10/04/2023 12:15:00 GMT
Frequency: Monthly
Source: ADP Research Institute
Traders often consider employment figures from ADP, America’s largest payrolls provider, report as the harbinger of the Bureau of Labor Statistics release on Nonfarm Payrolls (usually published two days later), because of the correlation between the two. The overlaying of both series is quite high, but on individual months, the discrepancy can be substantial. Another reason FX traders follow this report is the same as with the NFP – a persistent vigorous growth in employment figures increases inflationary pressures, and with it, the likelihood that the Fed will raise interest rates. Actual figures beating consensus tend to be USD bullish.
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