Gold Prices Coil Up for a Move as US Jobs Data Steers Fed Outlook

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GOLD PRICE OUTLOOK:

  • Gold prices manage to hold up through USD-positive ISM data
  • June nonfarm payrolls report due, focus may be wage inflation
  • Chart setup warns that downside momentum might be ebbing

Gold prices held up well despite potent selling pressure in the wake of US ISM manufacturing data. While growth slowed and employment shrank, overall activity levels held up near multi-year highs. Meanwhile, input prices surged. The markets seemingly took this to mean that the stage is setting for an upshift in the timeline for stimulus withdrawal (as expected).

Bullion eked out gains even as this backdrop buoyed front-end yields and the US Dollar. The absence of follow-through may speak to hesitation as the release of June’s US jobs report looms large ahead. Traders may have simply shied away from dictional commitment before the weighty data crosses the wires. It too is likely to be judged through the prism of Fed policy expectations.

The latest leading survey data speaks to growth transitioning from acceleration to cruise control even as uneven supply chains and input shortages drive prices sharply higher. In the same vein, a middling headline payrolls print – or even a slightly disappointing one – may be overlooked if wage inflation prints north of the expected 3.7 percent (which would itself be a three-month high).

That may be taken as supportive of markets’ increasingly hawkish outlook. Fed Funds futures already price in one rate hike in 2022. The Greenback is likely to lean into its recent rally in such a scenario, rising alongside a further advance in near-term interest rates. This threatens to undermine gold on two fronts, first as an anti-fiat alternative and second as a non-interest-bearing asset.

GOLD TECHNICAL ANALYSIS

Gold prices are perched atop support in the 1755-65 congestion area. Positive RSI divergence warns that downside momentum may be fizzling. This may imply a digestive period before the bearish trend resumes, but it may also be setting the stage for an upturn.

Immediate resistance is in the 1797.63-1808.40 area. A daily close above that may set the stage for a move higher toward 1850. Alternatively, a daily-close-confirmed break of support may touch off a slide toward the March bottom at 1676.10, with some friction near 1720.80 possible along the way.

Gold price chart created using TradingView

GOLD TRADING RESOURCES

— Written by Ilya Spivak, Head Strategist, APAC for DailyFX

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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