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Gold falls back as caution over US inflation offsets a hiring slowdown


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  • Gold price drops sharply amid strength in the US Dollar as focus shifts to US CPI.
  • Fed’s Bostic supports the continuation of the rate-tightening cycle amid resilience in consumer spending.
  • JP Morgan looks confident that the US economy will not enter a recession.

Gold price (XAU/USD) falls back after a short-lived pullback move as investors seem cautious ahead of the United States Consumer Price Index (CPI) data, which will be released on Thursday. The precious metal struggles to deliver a decisive move as the impact of a slowdown in firm hiring is offset by sticky wage growth and a lower Unemployment Rate.

The US Dollar Index (DXY) shows resilience as the recovery in global oil prices supports persistence in United States inflation. In addition to that, hawkish commentary from Federal Reserve (Fed) policymaker Raphael Bostic supports the US Dollar to defend against a hiring slowdown. Momentum in the US Dollar could strengthen further as JP Morgan raises its forecast for real annualized Gross Domestic Product (GDP) from Q3 to 2.5%, significantly higher than the prior estimate of 0.5%.

Daily Digest Market Movers: Gold price faces pressure ahead of CPI data

  • Gold price returns below $1,940.00 as investors turn cautious ahead of United States inflation data, which will be published on Thursday at 13:00 GMT.
  • The precious metal fails to sustain its recovery propelled by mixed Nonfarm Payrolls (NFP) data for July, released on Friday.
  • US NFP report showed that the labor market witnessed a fresh addition of 187K payrolls in July. June’s 209K figure was downwardly revised to 185K. This was the lowest figure since December 2020.
  • While job growth slows down, the Unemployment Rate dropped to 3.5% vs. the estimates and the former release of 3.6%.
  • Wage growth turned out stable despite a slowdown in the hiring process. The monthly labor cost index maintained its growth pace of 0.4% as recorded in June while investors anticipated a decline in the economic data to 0.3%. Annual economic data also remained stable at 4.4% against expectations of 4.2%.
  • Sustained wage growth would keep US inflationary pressures elevated and might force the Fed to raise interest rates further.
  • Atlanta Fed Bank President Raphael Bostic said on Friday that July’s employment remains in line with expectations and he is not surprised that wage growth is still strong. He further added that the central bank will keep interest rate policy restrictive in 2024. 
  • The US Dollar Index managed to rebound after defending the bearish impact of steady payrolls report after hawkish commentary from Fed Governor Michelle Bowman.
  • Fed Bowman said over the weekend that the central bank will raise interest rates further to bring inflation down. She further added that she supported further policy tightening in July amid strong consumer spending, a tight labor market, and still-high inflation.
  • Per CME Fedwatch Tool, there is a more than 84% chance in favor of a steady interest rate policy in September. 
  • After mixed employment data, investors shift focus to the inflation data. On a monthly basis, headline and core CPI are expected to maintain their pace of 0.2% as global oil prices rebounded sharply last month.
  • Sticky inflationary pressures might force the Fed to continue the policy-tightening spell.
  • Last week, US equities came under pressure after Fitch downgraded the US government’s long-term debt rating.
  • JP Morgan is confident that the US economy will not enter into a recession. Investment banking firm raises real annualized GDP growth forecast for July-September quarter to 2.5% from 0.5%.

Technical Analysis: Gold price oscillates inside Friday’s range

Gold price retraces after a less confident pullback move to near $1,947.00. The precious metal attempts a weak attempt of surpassing the 20-day Exponential Moving Average (EMA). The yellow metal oscillates inside Friday’s range as investors await US inflation data for a decisive move. Momentum oscillators demonstrate a volatility squeeze, which is expected to continue ahead.

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.