Gold price retraces as mixed labor data report lose appeal ahead of inflation data

  • 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

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