Gold extends recovery after weak US private payrolls data

• Gold extends recovery after weaker US jobs data
• The data increases the chance that the Federal Reserve will cut interest rates aggressively – a plus for Gold.
• US non-farm payrolls data out on Friday will be the most important piece of information in shaping interest rate expectations.

Gold (XAU/USD) is trading back in familiar territory, changing hands at $2,510 on Friday, after extending its rally following the release of more weak US jobs data, this time in the form of private data payroll, which grew at a slower pace than expected.

Although the negative data was tempered by a marginal drop in jobless claims, it still painted a picture of a stagnant jobs market going into Friday’s long-awaited official non-farm payrolls (NFP) report from the Bureau of Labor Statistics. US Labor Statistics (BLS), which is scheduled for release at 12:30 GMT.

NFP is likely to be instrumental in shaping expectations for the future trajectory of US interest rates and the value of the US dollar (USD), two important factors in determining the price of gold.

Gold focus on US employment and geopolitics

Gold rebounds after weaker-than-expected ADP Employment Change data showed the US private sector economy added 99,000 new jobs in August, a figure that fell both below the downwardly revised 111k from the previous month (from 122K) and below 145K of the economists. estimate.

Although initial U.S. jobless claims took some of the edge off the ADP data after showing a drop in job seekers to 227,000, from an upwardly revised 232,000 the previous week and an expected 230,000, the overall picture was one of a market of decreasing work. .

The data fueled concerns about the fragile US labor market, which is fueling interest rate expectations from the Federal Reserve (Fed). This comes after a recent shift by the Fed to focus on labor market risks rather than just inflation.

It follows weak JOLTS jobs data released on Wednesday and keeps the likelihood of the Fed cutting interest rates by 0.50% at their September 18 meeting relatively high. This, in turn, is positive for gold, as lower interest rates reduce the opportunity cost of holding the non-interest-paying asset.

Friday’s NFP is likely to provide the last significant evidence of how well the US labor market is managing and will be key in determining the odds of the Fed hiking 0.50% at its September meeting, as opposed to a standard discount of 0.25%.

Current market-based expectations put the odds of a 0.50% cut at just over 40%, while a 0.25% cut is the full price, according to the CME FedWatch tool. If the NFP data is lower than forecast and raises new concerns, the Fed will be more likely to opt for a cut of more than half a percent, an outcome that is likely to boost gold prices.

On the geopolitical front, US negotiators say they are 90 percent close to reaching an agreement on a cease-fire agreement between Israel and Hamas, according to Bloomberg News. If they are successful, it may reduce the refuge flows to gold.

In Ukraine, Russia continues its advance on the key strategic central city of Pokrovsk. If successful, it could have a dramatic impact on the war on the eastern front and threaten Ukraine’s entire defensive line in Donbass. Such an outcome, while still unlikely to occur anytime soon, would heighten tensions in the region and increase demand for gold. The Central Bank of Poland (NBP), for example, has been hoarding gold since the start of the war, according to data from the World Gold Council (WGC).

Technical analysis: Hammer candlestick, followed by a day up, confirms the bullish bias

Gold (XAU/USD) posted two bullish-looking Japanese hammer candlesticks in a row (box chart below) on Tuesday and Wednesday, and Thursday ended as a solid day in the green, with the pattern also gaining bullish confirmation. The model suggests that the odds favor a larger advantage in the very short term.

XAU/USD Daily Chart

The price of the yellow metal looks poised to return to the all-time high of $2,531 if it can maintain its bullish recovery momentum.

A bullish target for Gold, which has yet to be reached, is at $2,550 and remains active. The target was generated after the initial July-August eruption on August 14.

Gold’s medium and long-term trends also remain bullish, which, given the trend is your friend, means the odds favor an eventual bigger breakout materializing.

A break above the August 20 all-time high of $2,531 would provide more confirmation of a higher continuation towards the $2,550 target.

If gold continues to weaken steadily, however, it is likely to find the next support in the $2,470-$2,460 region. A decisive break below this level would change the picture for gold and suggest that the commodity could begin a more pronounced downtrend.