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05.09.2024, 01:52

Gold price consolidates below $2,500 as traders await more US labor market data

  • Gold price continues to draw support from bets for a 50 bps Fed rate cut in September. 
  • Falling US bond yields and softer USD also act as a tailwind for the non-yielding metal.
  • Bulls, however, seem reluctant and await the release of the US NFP report on Friday. 

Gold price (XAU/USD) struggles to capitalize on the overnight bounce from the $2,472-2,471 area or a nearly two-week low and oscillates in a narrow trading band during the Asian session on Thursday. The downside, however, remains cushioned in the wake of rising bets for a larger interest rate cut by the Federal Reserve (Fed), bolstered by a US labor market report showing that job openings fell to a three-and-a-half-year low in July. This comes on top of soft US manufacturing data on Tuesday and raises concerns about the health of the economy, which tempers investors' appetite for riskier assets and should further act as a tailwind for the safe-haven precious metal.

Despite the aforementioned supportive fundamental backdrop, traders seem reluctant to place aggressive bullish bets around the Gold price ahead of the crucial US monthly employment details – popularly known as the Nonfarm Payrolls (NFP) report on Friday. In the meantime, Thursday's US economic docket – featuring the release of the ADP report on private sector employment and the usual Weekly Jobless Claims – will be looked upon for short-term trading opportunities. Nevertheless, expectations for an imminent start of the Fed's policy-easing cycle might continue to lend support to the XAU/USD and support prospects for the emergence of dip-buying at lower levels. 

Daily Digest Market Movers: Gold price is underpinned by a dovish Fed-inspired fall in the US bond yields and the USD

  • The Job Openings and Labor Turnover Survey (JOLTS) published by the US Bureau of Labor Statistics showed that job openings fell to 7.673 million in July, or the lowest level since January 2021.
  • Adding to this, the reading for June was revised lower to show there were 7.910 million unfilled positions against the previously reported 8.184 million, further pointing to a softening labor market.
  • Furthermore, the Federal Reserve’s Beige Book revealed that nine out of 12 regional districts reported flat or declining economic activity in August, up from five that reported weak conditions in mid-July. 
  • Meanwhile, Atlanta Federal Reserve President Raphael Bostic said that price pressures are diminishing quickly and that the US central bank must not maintain a restrictive policy stance for too long. 
  • Separately, San Francisco Fed President Mary Daly said that the central bank needs to cut rates to keep the labor market healthy, but it is now down to incoming data to determine by how much.
  • According to the CME Group's FedWatch Tool, markets are pricing in around a 45% chance that the Fed will lower borrowing costs by 50 basis points at the upcoming policy meeting on September 17-18.
  • The dovish outlook drags the yield on the rate-sensitive two-year US government bond to its lowest level since May 2023 and the benchmark 10-year US Treasury yield to its lowest since July 2023.
  • This keeps the US Dollar bulls on the defensive and turns out to be a key factor acting as a tailwind for the non-yielding Gold price amid a generally softer tone surrounding the global equity markets. 
  • Traders now look to Thursday's release of the US ADP report on private-sector employment and Weekly Initial Jobless Claims for some impetus ahead of the Nonfarm Payrolls report on Friday. 

Technical Outlook: Gold price bulls might wait for a move beyond the $2,524-2,525 supply zone before placing fresh bets

From a technical perspective, any subsequent strength beyond the $2,500 psychological mark is likely to confront some resistance near the $2,524-2,425 supply zone ahead of the all-time peak, around the $2,531-2,532 area touched last month. Some follow-through buying will be seen as a fresh trigger for bulls and set the stage for the resumption of the recent well-established uptrend amid positive oscillators on the daily chart. 

On the flip side, the $2,471-2,470 horizontal zone seems to have emerged as an immediate strong support, below which the Gold price could slide to the 50-day Simple Moving Average (SMA), currently pegged near the $2,435 region. A convincing break below the latter might prompt some technical selling and expose the 100-day SMA, around the $2,386 area, with some intermediate support near the $2,400 round figure.

Gold FAQs

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

 

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