Gold rallied to test an all-time high shortly after the release of the US NFP report as the number of jobs added fell short of forecasts and continued downward revisions in data before reflecting a weakening labor market, which increased the likelihood of rate cuts. by the US Fed. However, the metal retreated after being considered due to the highest wage data in the forecast. Fed Governor Waller was on the cable on Friday saying that it is important for the US Fed to start cutting rates as the job market faces the risk of further weakening. He added that he is open to larger pieces when appropriate. Gold tried to bounce back from the comments as recovering US crop yields edged lower in recent days; However, the metal could not sustain the momentum and broke below the $2500 mark.
Spot gold finally closed 0.77% lower at $2497. It is down nearly 0.25% in the week.
Data roundup: mixed signals
The NFP report showed that US employers added 142K jobs Vs the forecast of 165K, moreover, the previous two months jobs data was revised 86K lower as the July data was revised lower to 89K from 114K. The unemployment rate fell to 4.20% (4.20% forecast) from 4.30% in July. Mother’s average hourly earnings came in at 0.4% Vs forecast 0.30%, while yoy hourly earnings were recorded at 3.80% Vs forecast 3.70%.
ISM manufacturing (August), ISM services (August) and JOLTs opening (July) data was released earlier in the week. ISM manufacturing rose to 47.50 from 46.80 but followed the forecast of 47.50. JOLT’s opening at 7673K was lower than the estimate of 8100K as the opening fell to its lowest level since the start of 2021.
US Yields and Dollar Index: Yields are in sync
The US bond market was also whipsawed after the US jobs report and Fedspeak as the jobs report cast doubt on the Fed’s intention to cut 50 bps at the September FOMC meeting. Ten-year US yields closed with a loss of 0.66% at 3.72% and were down around 5% on the week. The two-year yield closed 2.50% lower at 3.65% on Friday and is down around 7% for the week. The US Dollar Index closed at 101.19, down 0.14% on Friday. The index was down about 0.50% for the week.
Fedspeak: Rate cuts are coming
President of the Federal Reserve Bank of New York John Williams said it is appropriate to cut rates in the colling job market and disinflation trend. He added that the labor market will not be a source of price pressure going forward and that the timing of rate cuts will depend on incoming data, the evolving outlook and the balance of risks. The Fed’s Waller said he would withdraw front-loaded rate cuts if needed. Goolsbee also asked for a rate cut.
Data to come: eyes on US CPI data
Next week, the main focus will be on US CPI inflation (August), PPI inflation (August), University of Michigan (early September) and weekly jobless claims. Other key data in touch next week include China’s Caixin PMI services (August), PPI (August), CPI (August), and trade balance (August); UK monthly employment and monthly GDP (July); Euro zone Investor Sentix confidence and German CPI (August final).
ETF Holdings: The trend is encouraging
Total known global gold ETF holdings stood at 83,028MOz on September 5, nearly 1.50% higher than the level seen at the end of the previous week. Ownership is now at its highest level since mid-February as August recorded its third consecutive month of inflows.
Outlook
US data was mixed amid a weak labor market and Fed officials calling for rate cuts to support the metal. The 2-10 year yield curve has inverted on economic concerns, which is positive for the yellow metal. Weakness in the broader market will be a drag on the metal. Traders expect US CPI inflation data to continue to show disinflation; Thus, the 50 bps cut rate does not entirely rule out, which is positive for metal. Dip buying is the preferred strategy. Support is at $2470/$2440-$2446. Resistance at $2507/$2532/$2550 (stiff resistance).
(The author is Associate Vice President, Fundamental Currencies and Commodities at Sharekhan by BNP Paribas)
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