Gold prices started the week relatively calmly. However, it came under strong bearish pressure after Monday’s choppy move. Meanwhile, gold tumbled for the third week in a row despite Friday’s recovery. Additional recovery gains are possible as long as the $1,700 support holds, according to market analyst Eren Sengezer. Investors will closely follow the US PMI data and ECB policy announcements.
Gold fluctuates in a narrow range
cryptocoin.com As you follow, gold fluctuated in a narrow range on Monday due to the high impact macroeconomic data not being released. It closed the first day of the week almost unchanged. However, the negative change in risk sensitivity helped the dollar to outperform its rivals. This also did not allow the yellow metal to recover.
Reports that China is tightening coronavirus-related restrictions in Shenzhen have rekindled concerns over the demand outlook for gold. This put even more weight on gold prices. On Tuesday, data from the US revealed that the Conference Board’s Consumer Confidence Index rose to 103.2 in August from 95.3 in July. Although this pressure exceeded market expectations, it failed to trigger a risk rally.
Gold prices hit one-month low
Automated Data Processing (ADP) reported midweek that US private sector employment rose 132,000 in August, compared to the market forecast of 288,000. The initial market reaction caused the dollar to lose some altitude. However, the wage inflation component of the report showed that the annual change in annual wages was 7.6% in August. This, in turn, helped the dollar limit its losses. It also made it harder for gold to gain traction.
On Thursday, China announced it was quarantining the southwestern Chinese metropolis of Chengdu, home to 21.2 million people. Therefore, safe-haven flows continued to dominate the markets. Later in the day, optimistic data from the US supported the USD. This caused gold to hit a one-month low below $1,690.
EU NFP comes in line with expectations, gold reclaims $1,700
ISM’s August Manufacturing PMI survey showed that business activity in the manufacturing sector continued to grow at a strong pace in August. More importantly, the Employment Index component rose to 54.2 from 49.9 in July following the disappointing ADP report, reviving hopes for a strong NPL. The sharp drop in the survey’s Price Paid Index failed to derail the dollar. Thus, DXY reached its strongest level in two decades with 109.98. Meanwhile, the benchmark 10-year US Treasury yield rose above 2%. CME Group’s FedWatch Tool pointed to a 75% probability of a 75bps rate hike in September.
The U.S. Bureau of Labor Statistics (BLS) announced on Friday that Nonfarm Employment rose 315,000 in August, surpassing the market consensus of 300,000. Meanwhile, the Labor Force Participation Rate rose to 62.4% from 62.1% in July. Therefore, the Unemployment Rate rose to 3.7%. In addition, annual wage inflation remained stable at 5.2%. The 10-year U.S. T-bond yield fell nearly 2% after the jobs report. After that, gold regained $1,700 ahead of the weekend.
What is on the agenda of the next week for gold prices?
US markets will be closed on Monday for the Labor Day holiday. Therefore, market action is likely to remain stagnant. Caixin Services PMI data from China will be watched closely by market participants during the early trading hours of the Asian session on Tuesday. A data below 50 could remind investors of the slowdown in the world’s second-largest economy and hurt gold, according to the analyst. On the other hand, the analyst says that an unexpected development in the data will probably help improve the market mood. Therefore, it is possible that this will also provide relief for the precious metal.
On Wednesday, ISM will release its August Services PMI report for August. Markets paid close attention to the headline PMI and Employment Index component of ISM’s Manufacturing PMI. Therefore, according to the analyst, a similar reaction is likely. Experts forecast the ISM Services PMI to fall to 54.5 in August. If the Employment Index, which was 49.1 in July, remains below 50 for the third month in a row, it is possible to put pressure on the dollar. Meanwhile, FOMC Chairman Jerome Powell is scheduled to deliver a speech Wednesday.
The European Central Bank (ECB) will announce its interest rate decision on Thursday. Last week, ECB officials expressed their willingness to consider a 75 basis point rate hike. Eurozone inflation continues to rise amid the ongoing energy crisis. In this environment, the analyst sees it as likely that the ECB will choose to deliver a hawkish message. The analyst continues as follows:
In this scenario, it is possible for the euro to catch some capital outflows from the dollar. However, it’s worth noting that a hawkish ECB message could push the XAU/EUR one leg down. The dollar is likely to lose altitude after the ECB event. However, depending on the reaction of XAU/EUR, gold may struggle to gain bullish momentum.
Gold prices technical outlook and gold sentiment survey
Market analyst Eren Sengezer illustrates the technical outlook for gold as follows. The Relative Strength Index (RSI) indicator has turned north. With this move, it rose to 40 after testing 30 on Thursday. This technical development indicates that gold may extend its upside correction in the near term. On the upside, the 20-day and 50-day SMAs are forming a key resistance area at $1,750. A daily close above this hurdle is likely to open the door for a long recovery towards $1,780 (Fibonacci 23.6% retracement of the last downtrend) and $1,800 (psychological level, 100-day SMA).
$1,700 (psychological level, end point of recent downtrend) stands as an important support. Gold prices are likely to target $1,680 (July 21 low) if they drop below this level again and confirm it as resistance.
Following this week’s move, experts point to an overwhelmingly bearish trend in the FXStreet Forecast Survey’s one-week outlook. In this context, experts expect gold to continue falling next week. Meanwhile, the one-month outlook paints a mixed picture. But the average target stands at $1,690.
