Gold loses its shine ahead of jobs data

Gold drifted away from its seven week high hit earlier this week.  Gold futures settled lower on Wednesday—kicking their typically inverse relationship to a weaker dollar—as sentiment remained cautious following a recent rally on top of expectations that the Federal Reserve could further tighten interest rates going forward.

Gold prices on Thursday lowered, as the dollar firmed on expectations that the U.S. Federal Reserve could trim its bond holdings in September.

As markets await the data to be released on Friday, a snapshot of the examination of the jobs marketsrevealedthat private-sector hiring remained strong in July as employers added 178,000 jobs, slightly more than expected.

In the Friday report, the U.S. is expected to have added 180,000 jobs last month, keeping unemployment near a 16-year low of 4.4%, according to a Market Watch survey. The pace of hiring in the U.S. has already slowed sharply since hitting a post-recession peak of 250,000 a month in 2015, but continues to churn ahead, so far showing few red flags for wage-induced inflation.

The U.S. economy will likely be strong enough for the Fed to trim its bond holdings in September.
Gold and the U.S. currency unit typically move inversely as a cheaper dollar is beneficial to gold investors using another currency. Both markets are affected by interest-rate policy as higher rates support the dollar but also dull the appeal of non-yielding gold in favour of interest-bearing assets.

Green back gives backing to gold

It was a quiet Monday for gold on 24th July followed by a little change in gold and silver prices on Tuesday. Spot gold prices were at $1,255.60 per oz and silver at $16.46 per oz, while the PGMs were looking stronger with gains of 0.6%.

Gold’s rebound has found new vigor on the combination of the weaker dollar and the less hawkish US Federal Reserve stance. Dollar weakness has stemmed from the weak political scene in Washington which has resulted in a push in gold prices. Gold is sensitive to moves higher in both U.S. rates and the dollar. Weaker dollar makes gold less expensive for holders of foreign currency, while a rise in U.S. rates lifts the opportunity cost of holding non-yielding assets such as bullion.

Gold prices held steady on Friday as investors locked in profits from the precious metal's rally to six-week highs on Thursday and as markets awaited the release of U.S. second-quarter growth data due later in the day.

U.S. 2Q GDP figures released on Friday showed the economy grew at an annualized pace of 2.6% q/q, slightly missing consensus, with the Core Personal Consumption Expenditure (PCE) topping expectations with a print of 0.9% q/q. The data did little to shift expectations for a December interest rate hike with markets still pricing a roughly 50/50 chance the Fed will hike again this year.

Gold prices rallied for the third consecutive week with the precious metal rallying 1.9% to trade at 1268 ahead of the New York close on Friday. The advance comes alongside continued weakness in the greenback.

The dollar remained under pressure after the Fed said on Wednesday that inflation remains below its 2% target even as near-term risks to the economic outlook appear "roughly balanced". In the past, the Fed judged that weakness in inflation was transitory. The central bank's cautious tone on inflation sparked fresh uncertainty over the possibility of a third rate hike this year.

The greenback was also weakened by data on Thursday showing that initial jobless claims rose by 10,000 to 244,000 last week. Analysts expected jobless claims to rise by 7,000 to 241,000 last week.
Gold prices have done well, especially with equity markets setting fresh highs, but the weaker dollar of late has no doubt helped fuel the rally and it may be that as equities are setting fresh highs, more investors are expecting a correction so may be putting more into havens. Silver has been following gold, platinum prices have struggled to follow gold and palladium is still consolidating after the strong run in May/June. For now we expect the dollar to be the main driver in gold prices.

This week began with a positive note for gold as it Monday held around its highest price in nearly seven weeks as tensions on the Korean peninsula boosted safe-haven demand for the metal and as the U.S. dollar hovered close to multi-month lows.

News that North Korea has conducted yet another missile test spurred a late-week push higher in gold prices which stretched into near-term resistance just ahead of the European close.

The United States flew two supersonic B-1B bombers over the Korean peninsula in a show of force on Sunday and the U.S. ambassador to the United Nations said China, Japan and South Korea needed to do more after Pyongyang's latest missile tests.

Though a weaker dollar is the main driver for gold prices, currently deepening political turmoil in Washington and North Korea's progress on ballistic missiles will all ensure the uncertainty premium continues to support gold's price.

Looking ahead to next week, markets will be closely eyeing central bank interest rate decisions from the Reserve Bank of Australia (RBA) & the Bank of England (BOE) with the highly anticipated U.S. Non-Farm Payroll report slated for Friday. While the broader outlook for bullion remains constructive, prices are eyeing near-term resistance heading into the close of the month and could limit the topside near-term.