Gold prices (XAU/USD) continue their descent as the US Dollar maintains its strength, fueled by bearish market sentiment and robust job growth in the United States. The precious metal grapples with downward pressure as the Federal Reserve (Fed) signals a prolonged period of higher interest rates. The US Dollar’s appeal soars as the nation’s economy steers clear of recession, thanks to alleviating inflationary pressures and a stable job market.
In August, wage growth in the US showed signs of deceleration as employees opted to stick with their current positions, reflecting diminished confidence in the job market’s prospects. Following last week’s data, which indicated stable job growth, slower wage growth, and generally steady factory activity, investors shifted their focus to the upcoming release of the ISM Services PMI for August. Market expectations suggest that the PMI will maintain its resilience at 52.6, as the demand for services remains unwavering.
Gold Price Correction Amid Resilient US Dollar
The gold price corrects itself below the five-day consolidation range, oscillating between $1,939 and $1,945. Nonetheless, the overall market sentiment remains cautiously optimistic, with investors anticipating the conclusion of interest rate hikes by the Federal Reserve.
According to the CME Group FedWatch Tool, there is a 60% probability that interest rates will remain stable within the range of 5.25%-5.50% by the end of the year.
Gold’s performance remains steady as trading activity thins during the holiday period, with US markets closed on Labor Day. Hopes for a soft landing of the Federal Reserve’s monetary policies were boosted by recent data indicating a spike in the US Unemployment Rate to 3.8% and slower wage growth in August, signaling a cooling labor market.
Recent data indicates that US workers are becoming less inclined to change jobs, reflecting reduced confidence in the labor market. However, it’s worth noting that wage growth remains higher for employees who decide to switch jobs compared to those who stay in their current roles.
Slower wage growth and reduced disposable income may exert a dampening effect on consumer spending, potentially easing the pressure from persistent inflationary forces.
Strong US Dollar Surpasses 104.50 Mark
The US Dollar Index (DXY) attains a three-month high, surging above 104.50. The strength of the USD is underpinned by robust labor market data for August, offsetting concerns about the Manufacturing PMI remaining below the 50.0 threshold for the tenth consecutive month.
Despite a significant reduction in hawkish Federal Reserve expectations, the US Dollar remains resilient, as fears of a US economic recession have receded.
Goldman Sachs analysts estimate a 15% likelihood of the US economy slipping into a recession, citing cooling inflation and robust job growth as key factors. This figure represents a decrease from previous expectations of a 20% chance of a US economic downturn.
Cleveland Fed Bank President Loretta Mester, in remarks made on Friday, acknowledged that the labor market is moving toward a better equilibrium between supply and demand, highlighting its continued strength. She added that while job growth has slowed and job openings have decreased, the Unemployment Rate remains low.
Focus on Factory Orders Data and ISM Services PMI
The market’s attention is now on the Factory Orders data for July, with expectations of a 0.1% contraction on a monthly basis, following a 2.3% expansion in June. Recent manufacturing ISM data indicated that firms are trimming spending on inventory build-up and concentrating on enhancing profit margins.
The forthcoming highlight of the week is the release of the ISM Services PMI for August, scheduled for Wednesday. Market participants anticipate that the Federal Reserve will keep interest rates stable in September, although the central bank may leave the door open for further policy tightening, leaving investors divided on the possibility of rate cuts.
Gold Price Retreats Below $1,930
The gold price registers a fresh four-day low after breaching the consolidation range of $1,939 to $1,945, as the US Dollar Index continues its upward trajectory. The precious metal approaches the 50-day Exponential Moving Average (EMA) at $1,932.00, though it remains above the 20-day EMA, signaling a bullish short-term trend.
The Relative Strength Index (RSI) faces challenges in ascending into the bullish range of 60.00-80.00. Achieving these levels would trigger a bullish sentiment in the market.