Gold and silver markets displayed resilience today as economic concerns triggered by a U.S. report added to their allure.
Gold prices kicked off the day on the Multi Commodity Exchange (MCX) at Rs 59,570 per 10 grams, touching an intraday low of Rs 59,516. Internationally, prices remained steady around $1,938.55 per troy ounce. Meanwhile, silver commenced at Rs 75,099 per kg, with an intraday low of Rs 75,075 on the MCX. In the global market, silver maintained a value around $24.23 per troy ounce.
Manav Modi, an Analyst specializing in Commodities and Currency at MOFSL, offered insights, saying, “Gold prices gained ground due to growing optimism that the Federal Reserve might halt its interest rate increases this year, following U.S. data indicating an increase in unemployment. Nevertheless, gold remained below last session’s one-month highs due to a strong dollar and robust yields.”
The U.S. dollar remained near its three-month peak, hovering above the 104 mark, while U.S. Yields persisted above the 4% level, reinforcing expectations of further rate hikes.
Modi added, “Last week, the U.S. Core PCE price index met expectations. Although U.S. job growth improved in August, the unemployment rate rose to 3.8%, and wage growth slowed. This prompted immediate interest in safe-haven assets. However, these gains were capped as U.S. manufacturing PMI recorded its tenth consecutive monthly contraction in August, falling below the 50 mark.”
In China, premiums on physical gold subsided from recent highs, as hopes for stimulus to revive the top gold-buying economy cooled. With these factors in mind, the likelihood of a pause in the September Fed meeting has surged to over 90%. Today’s volatility may be subdued as U.S. markets are closed for Labor Day.
Amit Khare, Associate Vice President at GCL Broking, provided a mixed picture of MCX Gold and Silver’s recent performance. He noted, “Yesterday, both October Gold and December Silver had mixed closings, with October Gold closing at 59395 (0.04%) and December Silver at 75089 (-0.78%). Daily charts for bullion indicate some profit-taking, and the Momentum Indicator RSI supports this trend. Traders are advised to consider booking their long positions and exploring fresh short positions in Gold and Silver, targeting the given resistance level one, with a stop loss at resistance level two. Support levels to watch are Gold October Support 59200/59000 and Resistance 59500/59700, and Silver December Support 74500/74000 and Resistance 75600/76200.”
The U.S. nonfarm payroll report for August, while posting a headline figure of 187k jobs, fell short of expectations. July’s data was revised downward by 30k jobs, extending the trend of downward revisions in monthly job reports observed throughout the year. The labor force participation rate increased to 62.80% from July’s 62.60%, the highest since February 2020, contributing to a rise in the unemployment rate from 3.50% in July to 3.80% in August. The increased labor force participation rate may alleviate wage pressure to some extent, thus mitigating wage inflation concerns.
Praveen Singh, Associate V.P. specializing in Fundamental Currencies and Commodities at Sharekhan by BNP Paribas, expressed his concerns, stating, “Temporary help jobs in the U.S. declined by 0.70% from July, marking the third consecutive monthly decline. This trend is worrisome, as it could potentially lead to a higher pace of permanent job cuts by employers, raising the specter of future job losses.”
Average hourly earnings for August dipped to 0.20% from July’s 0.40%, falling short of the expected 0.30% increase. On a year-over-year basis, average hourly earnings stood at 4.30%, in line with forecasts. The two-month payroll revision showed a reduction of 110k jobs. The hours worked data provided a silver lining in the job report, with average weekly hours for all employees reaching 34.40, surpassing the forecast of 34.30 hours.
In another significant U.S. economic report, ISM manufacturing PMI data for August improved to 47.60 from July’s 46.40, exceeding the estimated 47. This increase in ISM prices paid, surging from 42.60 in July to 48.40, has heightened concerns about inflation.
Singh remarked, “U.S. treasuries initially rallied in response to the soft U.S. job report. However, the rally lost steam amid speculation that factors such as seasonality, Hollywood strikes, and the bankruptcy of the trucking company Yellow Corp may have artificially lowered the headline figure, possibly to be corrected in future job reports. Additionally, a heavy corporate bond issuance worth $120 billion scheduled for September and the impact of ISM prices paid data weighed on the bonds.”
Spot gold concluded nearly unchanged at $1940 on Friday as U.S. yields surged, boosting the U.S. Dollar Index. Nonetheless, gold recorded a weekly gain of nearly 1.37% for the week ending September 1, supported by lower yields during that period.
In a notable development favorable for gold, Canada’s GDP unexpectedly contracted by 0.20%, in contrast to the forecast of a 1.20% expansion. Meanwhile, China’s banks reduced mortgage rates in an effort to stimulate the real sector, and China’s Caixin manufacturing PMI revealed an unexpected expansion in August. However, disappointing data from Europe has fueled concerns about stagflation.
Total global gold ETF holdings, a key indicator, increased for the second consecutive day on August 31. Gold bulls may aim to test the $1965 resistance in the near term, with interim resistance at $1955. Support levels are at $1931/$1914. Overall, dip buying is expected to be a preferred trading strategy in this uncertain economic climate.