Gold remains in uncertain territory ahead of this week’s US jobs data

Gold remains uncertain as market attention shifts to upcoming US jobs data. COMEX gold prices are higher this week, marking the first weekly gain in four weeks, despite the US dollar’s sharp rise. Earlier, spot gold prices fell below the critical $1,900 an ounce mark on several factors, including US retail sales and dovish Federal Open Market Committee (FOMC) meeting minutes.

A potential inflationary risk was highlighted in these minutes, suggesting the need for further action on interest rates. However, following the release of the preliminary August PMI data, there was a shift in the US that showed economic activity was almost at a standstill. The S&P Global US Services PMI fell to 51 in August 2023 from 52.3 in the previous month, and the manufacturing PMI fell to 47 in August from 49 in July. This caused swap traders to reconsider their assumptions that further monetary tightening by the Federal Reserve would have pushed gold prices higher.

In a much-anticipated speech at the Jackson Hole symposium, Fed Chair Jerome Powell hailed progress in reducing inflation since last year’s peak. However, he warned that inflation remains “too high”; This means interest rates will remain elevated for an extended period and could trigger further hikes. Powell also stressed that until inflation falls steadily towards the 2 percent target, the policy will remain tightening. Last month the Fed raised interest rates to 5.25-5.5%, the highest level in 22 years. As expected, Powell stressed that economic growth and labor market conditions will be closely monitored when making policy decisions.

The focus now shifts from final interest rates to when interest rates are expected to remain elevated. At the same time, disagreements arose among members as inflation eased, and the July minutes revealed that two officials were in favor of leaving interest rates unchanged. Holdings in SPDR’s gold ETFs fell for the fifth straight week as the yield on the 10-year TIPS (real interest rate index) rose 2%, its highest level in 14 years. This surge has increased the opportunity cost of holding gold, prompting exit from gold ETFs. This trend should continue until investors are convinced that interest rates have peaked.

In recent quarters, large central bank purchases have fueled global demand for gold, reflecting intensifying geopolitical tensions and macroeconomic uncertainty.
With continued improvement in labor market indicators and consumer spending, policymakers may remain concerned about the prospects for inflation slowing. Next week, a slew of US jobs indicators could help shape expectations ahead of the Fed’s September 20 monetary policy meeting.

In terms of price action, COMEX Gold is up 1.30% for the previous week after finding support at $1,908 an ounce. However, the price is currently facing resistance around $1,953 a troy ounce, which coincides with the 60-day moving average (DMA) resistance. For the bulls to gain the upper hand and push the price higher, they need to clear the 60-day resistance at the daily close. Otherwise, the price could firm in the $1,950-$1,915 a troy ounce range.

(The author is Vice President of Commodity Research at Kotak Securities Limited )

(Disclaimer: Recommendations, suggestions, views, and expert opinions belong to them. These do not represent the views of web-open-market-place )

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