🥇 First rule of investing? Know when to save! Up to 55% off InvestingPro before BLACK FRIDAYCLAIM SALE

Gold: Weakness in Growth Post Release of Employment Data

Published 07/08/2024, 08:39 AM
XAU/USD
-
GC
-

Gold has lost 0.9% since the start of Monday, almost back to the point where it was trading before the release of jobs data on Friday. Perhaps the very first market reaction to the data release highlighted the mindset of key market participants: they are ready to sell.
Gold Price Chart

Gold has been on an upward trend since the last few days of June, leading the price up 4% to $2390 at its peak on Friday. This can largely be attributed to the dollar's 1% decline, as gold often moves with a higher amplitude.

Weak employment figures also pushed up the gold price on Friday, leading to a weaker dollar and bringing the start of rate cuts closer. However, we note the momentum of the 0.8% decline in gold in the first moments after publication.

The subsequent market reaction was a "worse is better" style: the weakness in the labour market increased expectations of a rate cut soon, which boosted risk appetite. But this is a very unsustainable play, as not all the negativity in the macro economy is disinflationary.

Just the opposite, we saw confirmation of wage growth (4.1% y/y) above inflation (3.3% y/y). At the same time, the previous months' hiring figures were revised downward, and the unemployment rate reached a 31-month high.
US Unemployment Rate

Thus, the economic situation is deteriorating faster than inflation is slowing. A key rate cut, in this case, would be an attempt to support economic growth rather than remove excessive tightness in monetary policy. That is, the chances of a cut for "bad" reasons rather than good ones are growing, which is negative for risk appetite in the medium term.

On the charts, gold has so far hit resistance at $2390, which also caused a local reversal in April. Further improvement in risk appetite in global financial markets cannot be ruled out and may be helped by the reporting season. Gold's ability to gain strength above $2390 could serve as an important price signal, heralding a fresh assault on historical highs near $2450.
Gold Daily Chart

However, we see more chance of further pressure on the gold price. We see the 50-day moving average at $2340 as the first signalling point. If this line is stormed without bullish resistance, the price could quickly retreat to the $2300 area, which is crucial for determining the dynamics for the coming months. A fall below it would be seen as a break of the bullish trend since October when the Fed first signalled its willingness to cut rates.

The FxPro Analyst Team

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.