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Gold price advances as US jobs data sparks Fed rate cut hopes

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4 months ago

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Gold price advances as US jobs data sparks Fed rate cut hopes

  • XAU/USD rises 0.05% to $2,493, with prices rebounding after hitting a daily low of $2,471.
  • Weaker-than-expected US JOLTS report fuels speculation of a 50 bps Fed rate cut in September.
  • Falling US Treasury yields and a softer US Dollar support Gold despite volatile profit-taking throughout the session.

Gold’s price aimed higher during the North American session after weaker-than-expected jobs data in the United States (US) increased the odds for a 50-basis-point (bps) rate cut by the Federal Reserve (Fed). Additionally, US Treasury bond yields dropped and undermined the Greenback, which is inversely correlated to the golden metal. Therefore, the XAU/USD trades at $2,493, up by a minimal 0.05%.

Bullion prices had been seesawing throughout the day, mainly driven by traders booking profits, which pushed the golden metal toward a daily low of $2,471. Lately, Gold recovered some ground as the US Bureau of Labor Statistics (BLS) revealed its latest Jobs & Labor Turnover Survey (JOLTS), showing vacancies dropped to their lowest level since January 2021.

Following the data, US Treasury bond yields fell, shown by the yield on the 10-year benchmark note that is down almost six bps to 3.776%. Traders increased their bets that the Fed might lower interest rates aggressively on fears that they are behind the curve.

According to CME FedWatch Tool data, odds for a 50 bps at the September meeting rose to 43%, almost a flip of a coin. The next Federal Open Market Committee (FOMC) meeting will be held on September 17-18.

The US Dollar Index (DXY), which tracks the performance of six currencies against the Greenback, dropped 0.37% to 101.38 after recovering from a year-to-date (YTD) low and rose almost 1.30% during the last six days.

Market sentiment remains negative, blamed on stock rotation amid fears of a recession in the US.

In the meantime, Gold traders prepare for another round of US jobs data. The ADP National Employment Change, Initial Jobless Claims, and the Nonfarm Payrolls (NFP) report are set to be released later in the week.

Daily digest market movers: Gold price traders await busy US economic calendar

  • US BLS revealed that the number of job openings in July tanked compared to June’s downwardly revised data via the JOLTS report. Vacancies dropped from 7.910 million to 7.673 million.
  • In other data, Factory Orders for July exceeded estimates of 4.7%, climbing sharply to 5% and crushing June’s -3.3% contraction.
  • US Business activity in the manufacturing sector improved but remained in contractionary territory.
  • Private hiring, revealed by the ADP National Employment Change report, was estimated to increase from 122K in July to 150K in August.
  • August’s NFP figures are expected to rise from 114K to 163K, while the Unemployment Rate could dip, according to the consensus, from 4.3% to 4.2%.
  • December 2024 Chicago Board of Trade (CBOT) fed funds future rates contract hints that investors are eyeing 106 basis points of Fed easing this year.

Technical outlook: Gold price hovers around $2,500

Gold price’s uptrend resumed on Wednesday as a ‘tweezers bottom’ chart pattern emerges, yet buyers need to clear a key resistance level that could sponsor a retest of the YTD high. Momentum, as measured by the Relative Strength Index (RSI), hints that buyers are in charge but turned flat in the near term.

If buyers achieve a daily close above $2,500, the next resistance would be the all-time high (ATH) at $2,531, followed by the $2,550 mark. A breach of the latter will expose $2,600.

Conversely, if XAU/USD stays below $2,500, the next support would be the August 22 low at $2,470. Once hurdled, the next demand zone would be the confluence of the April 12 high turned support and the 50-day Simple Moving Average (SMA) near $2,431.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

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

 

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