GOLD Analysis
Afternoon: Gold Prices Steady, Poised for Weekly Gain as Focus Shifts to U.S. Payrolls and Fed Rate Decision
Highlights:
- Market speculation has shifted towards a 50-basis-point Fed rate cut, though a 25-basis-point cut remains the most likely outcome.
- U.S. private sector hiring slowed to a three-and-a-half-year low, but unemployment claims declined.
- The ISM non-manufacturing PMI remained steady, showing modest growth in the services sector.
Overview:
Gold prices have remained stable throughout the week, although they are on track for a modest weekly gain. Investors are awaiting the release of the critical U.S. payrolls report, which will offer key insights into the health of the labor market and influence expectations for the Federal Reserve’s monetary policy in September. The report is expected to play a pivotal role in determining whether the Fed opts for a 25-basis-point or 50-basis-point rate cut at its upcoming meeting.
Speculation on Fed Rate Cut Intensifies
Market sentiment surrounding the Fed’s rate cut decision has shifted significantly over the past week. According to the CME Group’s FedWatch Tool, the probability of a 50-basis-point rate reduction has risen from 34% to 41%, signaling that a substantial cut is not off the table. However, a majority of traders still expect a more conservative 25-basis-point cut, with the odds of this outcome currently sitting at 59%. This debate over the size of the cut has added to market uncertainty, but gold has benefited from the continued expectation of monetary easing.
Weakness in the U.S. Labor Market
Data from August has shown that private sector hiring in the U.S. has slowed dramatically, with companies adding the fewest workers in over three and a half years. This is a strong indication that the labor market may be losing momentum, a critical factor for the Fed as it weighs its rate decision. The August payrolls report, set to be released soon, is expected to confirm or challenge these labor market concerns.
However, despite the slowdown in hiring, the number of new unemployment claims has dropped, which suggests that the labor market might not be deteriorating as fast as some fear. The conflicting signals from the employment data have left investors in a wait-and-see mode, further fueling the focus on the payrolls report.
Services Sector Remains Stable
The Institute for Supply Management (ISM) also released data on the services sector, indicating that it remained stable in August. The non-manufacturing purchasing managers' index (PMI) came in at 51.5, essentially unchanged from July’s figure of 51.4. This reading reflects modest growth in the U.S. services sector, but it was not strong enough to dispel fears of a broader economic slowdown.
Global Economic Data to Watch
In addition to the U.S. labor data, market participants are closely monitoring key economic reports from the Eurozone, including German industrial production figures and trade balance data. These reports will provide additional insight into global economic health, especially in light of ongoing trade tensions and a slowing European economy.
In the U.S., aside from the payrolls report, upcoming releases include average hourly earnings, non-farm employment change, and the unemployment rate. These figures are expected to influence both the Federal Reserve's decision-making process and broader market sentiment.
Gold's Performance Amid Uncertainty
Gold has continued to serve as a safe haven asset, maintaining its appeal in a low-interest-rate environment. The anticipated rate cuts, coupled with ongoing economic uncertainty, are likely to support gold prices in the near term. If the Federal Reserve opts for a more aggressive 50-basis-point cut, gold prices could see a significant boost as lower interest rates reduce the opportunity cost of holding non-yielding assets like gold.
However, if the Fed takes a more cautious approach with a 25-basis-point cut, gold could experience more modest gains or even face selling pressure if the labor market and economic data show signs of resilience.
Conclusion
The upcoming U.S. payrolls report is critical for determining the trajectory of both Federal Reserve policy and gold prices. As speculation around the size of the Fed's rate cut intensifies, gold remains an attractive investment amid uncertainty. The labor market's performance, alongside global economic data, will likely dictate gold’s movement in the near term.
Action: Buy on drop from 2513-08$ targeting 2528/2540$ which invalidates below 2500$
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