On Friday, spot gold was highly choppy and volatile in reaction to the US nonfarm payroll report (August) as the report sent mixed signals on the possible pace of rate cuts that are likely to begin at the September FOMC meeting to be concluded on September 18. Fed officials’ comments on the US monetary policy also added to volatility in gold prices.
Gold rallied to test the all-time high soon after the release of the US NFP report as the number of jobs added fell short of forecast and continuing downward revision in the previous data portrayed a weakening job market, which increase the possibility of a rate cut by the US Fed. However, the metal retreated thereafter on second thought due to wages data that topped the forecasts. The Fed Governor Waller was on wire Friday saying that it was important for the US Fed to start cutting rates as the job market faces risks of further weakening. He added that he was open to bigger cuts if appropriate. Gold tried to recover on his comments as the recovering US yields dipped to fresh day’s low; however, the metal was unable to sustain momentum and broke below $2500 mark.
Spot gold eventually closed 0.77% lower at $2497. It was down nearly 0.25% on the week.
Data roundup: Mixed signal
The NFP report showed that the US employers added 142K jobs Vs the forecast of 165K, moreover, the previous two-month job data were revised 86K lower as the July data was revised lower to 89K from 114K. The unemployment rate ticked lower to 4.20% (forecast 4.20%) from 4.30% in July. Average hourly earnings m-o-m came in at 0.4% Vs the forecast of 0.30%, whereas y-o-y hourly earnings were noted at 3.80% Vs the forecast of 3.70%.
ISM manufacturing (August), ISM services (August) and JOLTs openings (July) data were released earlier in the week. ISM manufacturing improved to 47.50 from 46.80 but trailed the forecast of 47.50. JOLTs openings at 7673K were sharply lower from the estimate of 8100K as the openings fell to the lowest level since the start of 2021.
US yields and the Dollar Index: Yields sink
The US bond market also whipsawed in the wake of the US job report and the Fedspeak as the job report casts doubts on the Fed going for 50 bps cuts at the September FOMC meeting.The 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 yields closed 2.50% lower at 3.65% Friday and were down around 7% on a weekly basis. The US Dollar Index closed at 101.19, down 0.14% Friday. The Index was down around 0.50% on the week.
Fedspeak: Rate cuts coming
Federal Reserve Bank of New York President John Williams said it is appropriate to slash rates on colling job market and disinflationary trend. He added that it is unlikely that the labour market will be a source of price pressures going forward and timing of rate cut will depend upon incoming data, the evolving outlook and the balance of risks. Fed’s Waller said that he would back front-loaded rate cuts if required. Goolsbee also called for rate cuts.
Upcoming data: eyes on US CPI data
Next week, major focus will be on the US CPI inflation (August), PPI inflation (August), University of Michigan (September preliminary) and weekly jobless claims. Other major data on tap next week include China’s Caixin PMI services (August), PPI (August), CPI (August), and trade balance (August); UK’s monthly employment and monthly GDP (July); the Euro-zone’s Sentix Investor confidence and Germany’s CPI (August final).
ETF Holdings: Encouraging trend
Total known global gold ETF holdings stood at 83.028MOz as of September 5, nearly 1.50% higher than the level seen at the end of the prior week. The holdings are presently at the highest level since mid-February as August recorded the third consecutive month of inflows.
Outlook
Mixed US data amid weakening job market and the Fed officials calling for rate cuts will be supportive for the metal. The 2-10 year yield curve has inverted on economic concerns, which is positive for the yellow metal. Weakness in wider markets will be a drag for the metal though. Traders expect the US CPI inflation data to continue to show disinflation; thus, 50 bps rate cut is not entirely ruled out, which is positive for the metal. Dip buying is the preferred strategy. Support is at $2470/$2440-$2446. Resistance is at $2507/$2532/$2550 (a stiff resistance).
(The author is Associate Vice President, Fundamental Currencies and Commodities at Sharekhan by BNP Paribas)
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