- Gold prices fell during a quiet North American session with US markets closed for Labor Day.
- Upcoming US economic reports — ISM PMIs, JOLTS job openings, ADP employment change and Nonfarm Payrolls — will influence the Fed’s rate decision.
- Fed Chair Powell in Jackson Hole noted that inflation was declining but employment risks were rising, raising recession concerns.
- Geopolitical tensions persist as President Biden could propose a ceasefire agreement between Israel and Hamas, which could affect markets.
Gold prices fell during the North American session amid thin volumes as US markets were closed for the Labor Day observance. In contrast, the Dollar is holding firm as traders prepare for a jobs report that could influence the Federal Reserve’s decision on the size of the September rate cut. XAU/USD is trading at $2,499, down 0.14%.
The US economic calendar will be busy this week with the release of the Institute for Supply Management (ISM) manufacturing and services PMIs, JOLTS job openings, ADP national employment change and Non-Farm Payrolls (NFP) figures.
During his speech at Jackson Hole, Federal Reserve Chairman Jerome Powell commented that inflation risks are skewed to the downside, while employment risks are skewed to the upside.
Last Friday, the Fed’s preferred inflation gauge, the core Personal Consumption Price Index (PCE), remained unchanged at around 2.5%, suggesting that inflation remains subdued. On the other hand, over the past four NFP reports, the unemployment rate has risen from 3.8% to 4.3%, raising fears among Fed officials that the labor market could be cooling faster than expected.
That rekindled recession fears that had faded after strong U.S. data last week. Initial jobless claims fell from late July levels, retail sales rose sharply and the economy grew at a 3% pace, according to the second estimate of second-quarter gross domestic product (GDP).
Following the data, gold prices fell as investors bought the US dollar on easing recession fears.
Despite this, geopolitical risks remain even though US President Biden is considering presenting Israel and Hamas with a final proposal for the release of hostages and a ceasefire in Gaza later this week, Axios sources said.
Daily Market Drivers Roundup: Gold traders expect a busy US economic calendar
- The ISM manufacturing PMI for August is expected to improve from 46.8 to 47.8. The services PMI is estimated to expand from 51.4 to 51.5.
- JOLTS job openings for July are expected to be 8.10 million, down from 8.184 million in June.
- Private hiring, as revealed by ADP’s national employment change report, is expected to rise from 122,000 in July to 150,000 in August.
- August NFP figures are expected to rise from 114,000 to 163,000, while the unemployment rate could fall, according to consensus, from 4.3% to 4.2%.
- The Chicago Board of Trade (CBOT) December 2024 federal funds rate futures contract suggests investors are looking at a 97 basis point easing from the Fed this year.
Technical Outlook: Gold Price Prepares to Fall Below $2,500
Gold prices have an upward bias, although the momentum has turned negative, as shown by the Relative Strength Index (RSI). Although the RSI is bullish, its slope is pointing downwards, approaching the neutral level. Therefore, in the short term, the XAU/USD has a bearish bias.
If XAU/USD drops below $2,500, the next support would be the August 22 low at $2,470. Once cleared, the next stop would be the confluence of the August 15 low and the 50-day simple moving average (SMA) near the $2,424-$2,431 area.
Conversely, if XAU/USD sustains above $2,500, the next resistance would be the ATH, and the next resistance would be the $2,550 level. A break of the latter will expose $2,600.
Gold FAQs
Gold has played a pivotal role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from its luster and use for jewelry, the precious metal is considered a safe haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. In order to support their currencies in turbulent times, central banks tend to diversify their reserves and buy gold to improve the perception of the strength of the economy and the currency. High gold reserves can be a source of confidence in a country’s solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase on record. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasury bonds, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
Gold prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, Gold prices tend to rise when interest rates fall, while rising money prices often weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep Gold prices in check, while a weaker Dollar is likely to push Gold prices higher.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
