Gold Loses Ground as US Job Numbers Impress Markets

Gold is lower on Thursday, following four straight winning sessions. Gold is trading at a spot price of $1361.13 per ounce in North American trade. There was positive news on the employment front as ADP Nonfarm Employment Change and Unemployment Claims both beat expectations. On Friday, we’ll get a look at the all-important Nonfarm Employment Change, with the markets expecting a strong turnaround after the May shocker of just 38 thousand. The estimate stands at 174 thousand.

Gold prices remain strong, as the safe-haven asset has become a magnet for jittery investors. The metal touched a high of $1375 on Tuesday, marking its highest level since March 2014. Gold has been one of the big winners of the Brexit referendum, as the financial markets bet on a Remain win and were completely caught off guard by the Brexit vote to leave the European Union. Gold has taken full advantage of the ensuing chaos, posting sharp gains of 8.8 percent in June and continued the upward movement in July. The instability and uncertainty surrounding Brexit means that gold prices could continue to climb, and well-respected UBS has stated that gold has started a bull run and will hit the $1400 level in the short term.

The Federal Reserve released the minutes of its June policy meeting on Wednesday. Policymakers expressed concerns about a slowdown and hiring and the health of the US economy, and the underlying tone was one of prudence and caution. The June meeting took place just one week before Britain voted to leave the EU, which has caused turmoil in the markets and sent bond yields to record lows. The minutes indicated that Fed members projected two rate increases before the end of the year, but that forecast is likely out-of-date following the shock waves from Brexit. Given the current economic climate, the markets are pessimistic about any rates moves before 2017. Investors have priced in no chance of a rate increase at the next Fed meeting on July 26-27, and just an eight percent chance of a hike in 2016. However, if US employment and inflation numbers improve in the second half of the year, the likelihood of a rate hike will certainly increase.

Fed Chair Janet Yellen and her colleagues continue to sound cautious about the US economy, and the financial instability caused by Brexit could delay any rate hikes until 2017. The US economy is in good shape, but the Fed hasn’t raised rates since last December and is unlikely to seriously consider any rate hikes unless employment and inflation numbers point upwards. Although Yellen recently said that Brexit would have an impact on the US, San Francisco Federal Reserve President John Williams seemed to disagree with that assessment. On Tuesday, Williams said that the US markets had reacted to Brexit as expected, and the impact on the US economy would be much smaller than the euro crisis of 2011-2012. Is Brexit having an impact on the Fed’s monetary stance? We may get an answer to that question when the Fed meets again for a policy meeting on July 26-27.

XAU/USD Fundamentals

Thursday (July 7)

• 7:30 US Challenger Job Cuts. Actual -14.1%
• 8:15 US ADP Nonfarm Employment Change. Estimate 158K. Actual 172K
• 8:30 US Unemployment Claims. Estimate 269K. Actual 254K
• 10:30 US Natural Gas Storage. Estimate 42B. Actual 39B
• 11:00 US Crude Oil Inventories. Estimate -2.1M. Actual -2.2M

Upcoming Key Events

Friday (July 8)

• 8:30 US Average Hourly Earnings. Estimate 0.2%
• 8:30 US Nonfarm Employment Change. Estimate 174K
• 8:30 US Unemployment Rate. Estimate 4.8%

*Key releases are highlighted in bold

*All release times are EDT

XAU/USD for Thursday, July 7, 2016

XAU/USD July 7 at 13:00 EDT

Open: 1366.20 Low: 1350.77 High: 1370.85 Close: 1361.13

XAU/USD Technical

• XAU/USD was flat in the Asian session. The pair posted losses in the European session but has reversed directions and moved upwards in North American trade
• 1361 is fluid and currently a weak support line
• There is resistance at 1388
• Current range: 1361 to 1388

Further levels in both directions:

• Below: 1361, 1331, 1307 and 1279
• Above: 1388, 1416 and 1433

OANDA’s Open Positions Ratio

XAU/USD ratio is showing slight movement towards long positions on Thursday. Currently, long positions have a majority (62%), indicative of trader bias towards XAU/USD reversing directions and moving to higher levels.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.