Gold investors will be watching U.S. data like a hawk this week, anticipating a weakening trend
Gold market will be hungry for information that will help provide some clarity to the Federal Reserve's open-ended monetary policy stance with disappointing economic data supporting higher prices.
While analysts are not expecting a major breakout in gold in the near term, some have said that the bias is to the upside as the Federal Reserve's monetary policy stance is expected to weaken the economy. Heading into the weekend, the gold market has pushed back above $1,950 an ounce, even as it sees a modest loss. August gold futures last traded at $1,958.80 an ounce, down 0.3% from last Friday.
In comparison, silver has seen a bigger struggle this past week as prices have managed to hold support above $24.25 an ounce. September Silver futures last traded at $24.45 an ounce, down 1.6% from last week.
Kevin Grady, president of Phoenix Futures and Options, said he expects gold prices to test the top end of its current range in reaction to softer data. He added that while a definitive softening trend could propel gold higher, even the slightest sign of weakness will be price supportive.
"The market is desperate for any type of clarity. Right now, the Federal Reserve is going to maintain their hawkish bias because they want to see inflation go down further, so any soft data that will shift that bias will be good for gold," he said.
While there are a variety of economic reports that investors will be able to sink their teeth into, the main event will be on Friday with the release of the U.S. Labor Department's July nonfarm payrolls report.
Lukman Otunuga, manager of market analysis at FXTM, said that because of the Federal Reserve's data-dependent stance, gold will be particularly sensitive to the employment numbers.
The Federal Reserve has said it would like to see some cooling in the labor market as a condition for controlling inflation. In the last report, the Labor Department said the economy created 209,000 jobs in June. This was the first time the employment data missed expectations since May 2022.
"Every US data point moving forward will act as a key piece that will determine whether the Fed raises rates one final time in 2023 or not. Given how markets are only pricing in an 18% probability of rate hike in September, with this jumping to only 37% by November, gold bulls remain in a comfortable position," Otunuga said. "The path of least resistance for gold points north with a disappointing jobs report next week potentially opening a path back towards $1985. A solid breakout above this point could open the doors towards the psychological $2000 level."
Some analysts have noted that along with benefiting from an inevitable shift in monetary policy, which will weaken the U.S. dollar, weaker economic data will also raise fears of a potential recession, supporting gold's safe-haven allure.
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Silver prices struggling as market ignores robust economic data
"Right now, central banks have the fraught responsibility of striking the balance just right on interest rates – investors will be looking for signs by which to judge the success or otherwise of the banks' actions," said Stuart O'Reilly, Market Insight Analyst at the Royal Mint, in a statement to Kitco News. "Persistently high inflation or signs that a major economy could tip into recession might lead some investors to increase their allocations to gold as a traditional ‘safe haven' – signs of economic recovery and falling inflation may have the opposite effect. As central banks navigate this challenging period, the jury is out on how gold will fare in the months ahead as global economies find out whether recent interest rate rises have gone too far, too quick."
Bob Haberkorn, senior commodities broker with RJO Futures, said he doesn't expect to see a significant breakdown in economic data next week. However, he added that the reports should start highlighting a slowing pattern.
"We are starting to see inflation turning in the right direction because interest rates are starting to bite into the economy," he said. "When you look at gold, it's in a great place. It is holding above $1,950 an ounce even after the Fed has raised interest rates above 5%. The minute the Federal Reserve indicates it's done tightening, we will see gold prices much higher."
Next week's data:
Tuesday: U.S. ISM manufacturing PMI, JOLTS job report
Wednesday: U.S. ADP nonfarm employment
Thursday: Bank of England monetary policy decision, jobless claims, ISM services PMI
Friday: U.S. nonfarm payrolls
By
Neils Christensen
For Kitco News
Tim Moseley