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Gold Steady after Sharp Losses at End of Week

Gold has posted small losses on Monday, following sharp losses in the Friday session after the Nonfarm Payrolls report. In the North American session, the pair is trading at $1335.72. On the release front, it was a very quiet start to the week, with just one event on the schedule. US Labor Market Conditions Index improved to plus-1, marking its first gain since January.

Gold prices dropped 1.8% on Friday, as the metal reacted to a stellar performance from Nonfarm Payrolls [1], one of the most important economic indicators. The payroll report surprised the markets with a huge gain of 255 thousand, crushing the estimate of 180 thousand. US wage growth has been a soft spot in the strong labor market, but there was positive news as Average Hourly Earnings gained 0.3%, edging above the forecast of 0.2%. As well, Unemployment Claims remained steady at 4.9%. On Monday, the Labor Market Conditions Index, which provides a snapshot of labor activity, improved to plus-1, ending a nasty streak of five straight declines. These strong numbers will likely increase the odds of a September rate hike by the Federal Reserve. The Fed has made no secret of the fact that any rate move will be data-dependent, and upcoming employment and inflation reports will be critical factors in the Fed’s decision. The recent US GDP report, which was much softer than expected, had dampened speculation about a rate hike before next year, but the stellar job numbers has increased the likelihood a move by Fed before the end of the year.

There was dramatic news on Thursday, as the Bank of England lowered interest rates for the first time since 2009. These rate cuts by central banks can boost the price of gold, as the metal becomes more attractive to investors who are holding pound-based assets and are now receiving lower rates of interest. Since the stunning Brexit vote in late June, the bank had put the market on notice that a rate cut was coming, and the BOE made good on its word after staying on the sidelines in July. The quarter-point cut has lowered the official bank rate from 0.50% to a historic low of 0.25%. The BoE has also expanded its asset-purchase program for the first time since July 2012, from GBP 375 billion to GBP 425 billion pounds. Although the rate cut was widely expected, the pound nevertheless lost over 200 points following the dramatic move. Britain’s decision to depart the EU has shaken the financial markets, and the economic fallout, which is just beginning to be measured, is expected to be significant. The BoE is trying to cushion the negative impact of Brexit, and has cut rates and expanded asset purchases in an attempt to stabilize the economy and promote consumer confidence and spending. BoE Governor Mark Carney has shown that he is willing to take decisive monetary action in order to bolster the British economy, which is expected to weaken in the third quarter.

XAU/USD Fundamentals

Monday (August 8)

*Key releases are highlighted in bold

*All release times are EDT

XAU/USD for Monday, August 8, 2016

XAU/USD August 8 at 12:10 EDT

Open: 1333.61 High: 1338.30 Low: 1329.92 Close: 1335.72

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1279 1307 1331 1361 1388 1416

Further levels in both directions:

OANDA’s Open Positions Ratio

XAU/USD ratio has shown strong gains toward long positions. These positions have a majority (63%), indicative of trader bias towards XAU/USD continuing to move upwards. 

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.

Kenny Fisher

Kenny Fisher [5]

Currency Analyst at Market Pulse [6]
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.