Financial markets in the US will remain closed in observance of the Labor Day holiday on Monday. On Tuesday, the ISM Manufacturing Purchasing Managers Index (PMI) for August will be featured in the US economic docket. Investors expect the headline PMI to edgehigher to 47.8 from 46.8 in July. A reading above 50, which would suggest that the business activity in the manufacturing sector recovered back into the expansion territory, could provide a boost to the USD with the immediate reaction and weigh on Gold.
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On Thursday, the ADP Employment Change and the ISM Services PMI data from the US will be looked upon for fresh impetus. The market reaction to these data is likely to be straightforward and short-lasting, with positive surprises supporting the USD and negative prints hurting the currency, ahead of Friday’s highly-anticipated August jobs report.
Nonfarm Payrolls (NFP) in the US are forecast to rise by 163,000 in August following July’s disappointing 114,000 increase. The Unemployment Rate is expected to tick down to 4.2% from 4.3% and the monthly wage inflation, as measured by the change in the Average Hourly Earnings, is seen rising 0.3%.
While speaking at the Jackson Hole Economic Symposium, Fed Chairman Powell said they will do everything they can to support a strong labor market, while making further progress toward price stability. Similarly, “we want the labor market to stay about where it is, we need to adjust the policy rate to keep it there,” San Francisco Fed President Mary Daly noted earlier in the week.
Fed policymakers made it clear following the July policy meeting that they are shifting their focus to the labor market on growing signs of worsening conditions. Hence, even a small divergence from the market consensus in the NFP reading could trigger a big reaction in Gold. A better-than-forecast print could cause investors to refrain from pricing in an aggressive Fed policy loosening and fuel a strong rebound in the USD, weighing on Gold. Markets currently see a nearly 70% probability of the Fed lowering the policy rate by a total of at least 100 basis points by year-end. On the other hand, a second straight weak NFP print could open the door for another leg lower in the US Treasury bond yields and the USD, allowing Yellow Metal to push higher heading into the weekend.
Commodity strategist Neel Bhai argued in a recently published report that gold is unlikely to see any significant growth in the near future:
“According to Bloomberg, Gold ETF holdings rose by 15 tonnes last week to the highest level in six months. Speculative interest is particularly strong. The net long position of speculative investors rose to around 193,000 contracts in the week to August 20th, at the same time as Gold hit an all-time high, its highest level in almost four and a half years,”.
“Much of the positive news for Gold may therefore already have been priced in. We feel vindicated in our view that Gold has no significant upside potential for the time being. We see more room for the three other precious metals that have not caught up with Gold in recent weeks,” he added.
Gold Technical Report
Gold’s short-term technical outlook suggests that the bullish bias remains intact. The Relative Strength Index (RSI) indicator on the daily chart stays near 60 and Yellow Metal continues to trade within the upper range of the ascending regression channel coming from mid-February.
Immediate support is located in the $2,490—$2,475 area (psychological level, mid-point of the ascending regression channel) before $2,475, where the 20-period Simple Moving Average (SMA) aligns. A daily close below the latter could open the door for an extended slide toward $2,420 (50-day SMA).
On the upside, static resistance seems to have formed at $2,532. Once Gold rises above this level and confirms it as support, it could target the upper limit of the ascending channel at $2,600—$2644.
