• Gold price awaits key economic data for further action.
  • US PCE remained stubborn in July due to steady wage growth.
  • US inflation has become more responsive to the job market.

Gold price (XAU/USD) remains calm before the US Nonfarm Payrolls (NFP) and ISM Manufacturing PMI data for August, which will set an undertone for the Federal Reserve’s (Fed) interest-rate decision to be taken on September 20. Fed Chair Jerome Powell at the Jackson Hole Symposium that further policy action will depend on incoming data and cited that inflation has become more responsive to the job market.

The precious metal struggles for a decisive move as investors wait for a clear picture of labor market conditions for making an informed trade. The US ADP Employment Change report released on Wednesday suggested that labor demand softened and wage growth momentum slowed in August. Firms appear to be reluctant to expand their labor force to avoid excess production due to a deteriorating demand outlook.

Daily Digest Market Movers: Gold price awaits US NFP data

  • Gold price continues to trade sideways. The upside remains restricted around $1,950.00 due to stubborn Personal Consumption Expenditure (PCE) Price Index data, while the downside remains supported near $1,940.00 inspired by soft labor demand.
  • The precious metal is expected to deliver a power-pack action after the release of the US Nonfarm Payrolls data, which will be published at 12:30 GMT.
  • Gold price traded inside Wednesday’s price range on Thursday as the impact of the soft ADP Employment report was offset by still-high numbers from the Federal Reserve’s preferred inflation tool, the PCE Price Index.
  • The US PCE price index remained sticky in July. The monthly headline and core PCE grew at a stable pace of 0.2%. Also, the annual headline and core PCE accelerated marginally to 3.3% and 4.2%, respectively, as expected by market participants.
  • Meanwhile, the US labor market is delivering mixed cues. ADP Employment report for August suggested lower employment creation, while Jobless Claims for the week ending August 25 were lower.
  • The US Department of Labor reported that individuals claiming jobless benefits dropped to 228K, less than the 235K expected and the former reading of 232K.
  • 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.
  • A 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%.
  • Going forward, investors will keep focus on the NFP data as Fed Chair Jerome Powell said that further policy action will be data-dependent and inflation is getting more responsive to the job market.
  • US employers are expected to have added 170K labor employees in August, a decline from July’s reading of 187K. The Unemployment Rate is seen unchanged at 3.5%.
  • Apart from the job market data, investors will focus on the Average Hourly Earnings. Labor costs are expected to grow 0.3% on the month, slowing from the 0.4% increase seen in July. On an annual basis, growth in Average Hourly Earnings is seen unchanged at 4.4%.
  • Strong wage growth has been a major catalyst behind stubborn inflationary pressures. US households’ spending remains solid due to higher disposable income.
  • Amid the data-packed week, ISM Manufacturing PMI will also be on the investors’ radar. The index, which gauges activity in the US factory sector, is expected to come in at 47.0, higher than July’s print of 46.4. Still, a figure below the 50.0 threshold suggests a contraction in activity.
  • August Manufacturing PMI could remain below 50.0 for a ninth straight month. US factories are operating at lower capacity due to a deteriorating demand environment.

Technical Analysis: Gold price juggles below $1,950

Gold price demonstrates a lackluster performance below $1,950.00 as investors await the US labor market data for further action. The precious metal oscillates near the upper portion of the Rising Channel chart pattern formed on a small term frame. The yellow metal stabilizes above the 20- and 50-day Exponential Moving Averages (EMAs), which indicates that the mid-term trend has turned positive.

The Relative Strength Index (RSI) climbs to near 60.00. A decisive break into the range of 60.00-80.00 will likely activate the bullish impulse.

US Dollar FAQs

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

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