- Gold price recovers strongly to near $1,920.00 as pressure builds on US Dollar and Treasury yields.
- Fed’s September policy action will be highly guided by August labor market data.
- US Raimondo and China’s Wang Yi agree to launch a platform on export control information.
Gold price (XAU/USD) strengths as US firms invited applications for lower job openings in July. Fresh job vacancies in July were 8.827M against June’s reading of 9.165M while investors anticipated 9.465M openings. Weak job openings data indicate that the US labor market is losing its resilience.
Jerome Powell reiterated at the Jackson Hole Symposium that the central bank will remain data-dependent. Powell added that inflation has become more responsive to the labor market, so upcoming JOLTS and other job-market-related data later this week are set to be crucial to determining the Fed’s next steps.
US employment and ISM Manufacturing PMI data will remain on investors’ radar. The weightage of August labor market data is expected to remain high as it will provide a base for September’s interest rate decision. Investors hope that hiring momentum slows as US firms are banking on lower operating capacity due to a delicate economic outlook. Also, factory activity is expected to contract for the ninth straight month.
Daily Digest Market Movers: Gold price capitalizes on soft JOLTS Job Openings data
- Gold price climbs perpendicularly to near $1,930.00 after the US Bureau of Labor Statistics posted weaker-than-anticipated JOLTS JOb Openings for July.
- US firms invited fresh applications for 8.827M vacancies against June’s reading of 9.165M while investors anticipated 9.465M openings.
- The recovery move in the Gold price is also backed by a subdued US Dollar and declining US Treasury Yields. The US Dollar Index (DXY) struggles to climb above 104.00, while 10-year US bond yields drop to near 4.18%.
- The US Dollar comes under pressure as Fed Chair Jerome Powell reiterated at the Jackson Hole Symposium that further policy action will depend on economic data.
- Jerome Powell kept doors open for further policy tightening as the achievement of price stability has a long way to go. Two months of lower inflation levels is just the beginning of what the central bank wants to build.
- Cleveland Fed Bank President Loretta Mester supported one more interest rate hike in 2023 this week to ensure that the goal of price stability is achieved before 2026.
- After the hawkish Powell commentary, investors shifted focus to the Automatic Data Processing (ADP) Employment Change data for August, which will be published on Wednesday at 12:15 GMT.
- The central bank has evidence that inflation is getting more responsive to labor markets. Powell said that further signs of a tightening job market could warrant more Fed action.
- Powell’s commentary about the job market has increased the significance of August employment data as it will provide a base for September’s monetary policy.
- For the ADP data release, the US private sector is expected to have added 195K jobs in August, significantly lower than July’s reading of 324K.
- Before US ADP Employment data, investors will focus on JOLTS Job Openings for July, which will be released at 14:00 GMT. As per estimates, US firms posted fresh 9.465M vacancies, lower than June’s job openings figure of 9.582M.
- Apart from the labor market data, investors will also keep the ISM Manufacturing PMI data for August on their radar, which will be released on Friday.
- US factory activity is expected to contract for a ninth consecutive month, according to estimates. The ISM Manufacturing PMI is seen at 47.0, slightly higher than July’s reading of 46.4. Still, a figure below the 50.0 threshold signals a contraction in activity. The New Orders Index, a widely followed leading indicator, is expected to drop to 46.3 from 47.3.
- On Monday, the Texas Manufacturing Outlook Survey reported that a key measure of state manufacturing conditions fell six points to -11.2, its lowest level since May 2020.
- Investors are keenly focusing on US Commerce Secretary Gina Raimondo’s visit to China. Raimondo said the administration is aware of challenges and optimistic about US-China ties.
- Raimondo and China’s Foreign Minister Wang Yi agreed to launch a platform on export control information.
Technical Analysis: Gold price jumps vertically to near $1,930
Gold price climbs to near $1,930.00 as fresh job vacancies in June were significantly lower than anticipated. The precious metal climbs above the 20- and 200-day Exponential Moving Average (EMA), which indicates a solid recovery attempt. In spite of this revival move, the yellow metal has to pass through some more filters for a sustained reversal.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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