Gold Tries to Rise After Plunging: Focus Now Shifts to US Jobs Report
Gold prices began to show signs of recovery in early trading today after falling to a monthly low of around $3,268, following the aggressive policy tone of the US Federal Reserve (Fed) that prompted a surge in the US Dollar and sudden selling pressure on the precious metal.
Key Factors Affecting the Market
Fed Maintains Rates, Tone Remains 'Hawkish'
The Federal Reserve kept interest rates between 4.25% and 4.50% in a 9-2 vote, with two members calling for an earlier rate cut. However, Chairman Jerome Powell remained cautious, stating:
The tone of the statement is considered more inclined to tighten policy (hawkish), thus reducing market expectations for any rate cuts in the near future.
Currently, the market only places a 58% chance that the Fed will continue to hold rates at the current level ahead of the September meeting.
US-China Trade Tensions Resurface
China's official news agency has been seen to have raised deep structural issues in the US-China trade relationship, raising doubts about any short-term solution.
The August 12 deadline for tariff extensions is now in the spotlight.
While the US recently signed trade deals with Thailand and Cambodia, the failure to make progress with China has reignited geopolitical concerns, something that would normally boost demand for safe haven assets like gold.
Strong US Economic Data Supports US Dollar
The US economy expanded strongly in the second quarter, registering 3% (annualized) growth, far exceeding expectations of 2.4% and rebounding from a contraction in the first quarter.
The ADP jobs report also showed a gain of 104,000 in July, beating expectations and supporting the Fed's cautious stance.
The data further reinforces the Fed's approach of not rushing to ease policy, thus putting additional pressure on the gold market from a fundamental perspective.
Markets Start Adjusting Positions Ahead of NFP Data
Many traders are taking profits on the recent surge in the US Dollar and repositioning ahead of the important Nonfarm Payrolls (NFP) report due out this Friday.
The report is seen as the Fed’s policy direction for the fourth quarter, and will directly impact the direction of the gold market.
What Traders Need to Watch in the Near Term
Nonfarm Payrolls (NFP) – Friday
If the jobs data remains strong, it will confirm the resilience of the US economy and reinforce the case for the Fed to remain hawkish, thus adding pressure on gold prices.
However, if the data is weak, it could reignite rate cut speculation and support a recovery in gold prices.
US-China Trade Developments
The August 12 tariff deadline remains a mystery.
Any sudden developments or official statements could quickly change market sentiment, potentially restoring gold’s appeal as a safe haven.
Market Sentiment: Fed and Political Pressure
While Powell remains cautious, the 9-2 split in the vote suggests that there is growing internal pressure within the Fed.
With the US Election approaching, the political influence of the Trump administration may become more pronounced, particularly in pushing for monetary easing, an important factor to watch as we head into the third quarter of this year.
Summary
Gold is currently seen trying to stabilize after a sharp drop following the Fed's statement, but downside risks remain if the precious metal fails to re-enter the crucial zone between $3,300 and $3,340.
The Fed's remaining cautious tone and increasingly strong US economic data continue to limit gold's potential recovery.
Market focus now shifts to Friday's NFP report, which is expected to be the main catalyst for further moves.
If the data reading is strong, gold risks continuing its decline. Conversely, if it is weak, demand for gold may rebound.
Traders are advised to remain flexible and continue to monitor developments in the US-China trade talks and changes in sentiment ahead of the important data.
