Gold price keeps the red above $2,650, Middle East tensions to limit losses ahead of US ADP

10/02/2024 07:20:08 GMT|ByHaresh Menghani

Gold price drifts lower on Wednesday and erodes a part of the previous day's strong move up.
Reduced bets for oversized rate cuts by the Fed underpin the USD and weigh on the XAU/USD.
Traders now look to the US ADP report for a fresh impetus ahead of the key US NFP on Friday.

Gold price (XAU/USD) struggles to capitalize on the previous day's sharp rise of over 1%, triggered by a further escalation of geopolitical tensions in the Middle East and attracts fresh sellers on Wednesday. The US Dollar (USD) sticks to its recovery gains registered over the past two days amid signs of a still resilient US labor market and diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed). This, in turn, is seen as a key factor exerting some downward pressure on the non-yielding precious metal.

The downside for the Gold price, however, seems cushioned in the wake of the risk of a full-blown war in the Middle East. The fears resurfaced after Iran fired ballistic missiles at Israel on Tuesday, which continues to weigh on investors' sentiment and should act as a tailwind for the safe-haven precious metal. Hence, any subsequent slide could be seen as a buying opportunity and is more likely to remain cushioned. Investors now look to the release of the US ADP report on private-sector employment for short-term trading impetus.

Daily Digest Market Movers: Gold price bulls turn cautious amid reduced bets for more aggressive Fed policy easing

Iran fired a barrage of ballistic missiles at Israel on Tuesday in retaliation to the latter’s aggression in Lebanon against the Iran-backed armed movement, Hezbollah, and helped revive demand for the safe-haven Gold price.
Israeli Prime Minister Benjamin Netanyahu promised that Iran would pay for its missile attack, while Iran said any retaliation would be met with vast destruction, raising the risk of a broader conflict in the Middle East.
The Job Openings and Labor Turnover Survey (JOLTS) published by the US Bureau of Labor Statistics (BLS) showed that the number of job openings unexpectedly increased in August and stood at 8.04 million.
Separately, the Institute for Supply Management (ISM) reported that its Manufacturing PMI remained unchanged at 47.2 in September, pointing to a contraction in the business activity for the sixth straight month.
Investors are still assessing the likelihood of another 50 basis points interest rate cut by the US central bank in November after the Federal Reserve Chair Jerome Powell's relatively hawkish comments on Monday.
Powell said that he sees two more 25 bps rate cuts this year as a baseline if the economy performs as expected, though the CME Group's FedWatch Tool indicates over a 35% chance of a supersized rate cut next month.
Atlanta Fed President Raphael Bostic noted on Tuesday that the US central bank should be willing to explore more outsized rate cuts if the jobs market deteriorates and the PCE data show disinflation still on track.
Market participants now look forward to the US ADP report, which is expected to show that private-sector employers added 120K jobs in September as compared to the 99K previous, for short-term opportunities.
The focus, however, will remain glued to the closely-watched official monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report, which should provide a fresh directional impetus.

Technical Outlook: Gold price might continue to attract some dip-buyers near the $2,625-2,624 resistance-turned-support

From a technical perspective, the overnight strong move-up reinforced a short-term ascending channel resistance breakpoint, turning support near the $2,625-2,624 region. The said area should now act as a key pivotal point, which if broken decisively might prompt some technical selling. The subsequent downfall could drag the Gold price below the $2,600 mark, towards the next relevant support near the $2,560 zone en route to the $2,535-2,530 region.

On the flip side, the $2,672-$2,673 area might continue to offer immediate resistance ahead of the $2,685-2,686 zone, or the all-time peak touched last week. This is closely followed by the $2,700 mark, which if conquered will be seen as a fresh trigger for bullish traders and set the stage for an extension of a well-established multi-month-old uptrend.

Economic Indicator

ADP Employment Change

The ADP Employment Change is a gauge of employment in the private sector released by the largest payroll processor in the US, Automatic Data Processing Inc. It measures the change in the number of people privately employed in the US. Generally speaking, a rise in the indicator has positive implications for consumer spending and is stimulative of economic growth. So a high reading is traditionally seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

Traders often consider employment figures from ADP, America’s largest payrolls provider, report as the harbinger of the Bureau of Labor Statistics release on Nonfarm Payrolls (usually published two days later), because of the correlation between the two. The overlaying of both series is quite high, but on individual months, the discrepancy can be substantial. Another reason FX traders follow this report is the same as with the NFP – a persistent vigorous growth in employment figures increases inflationary pressures, and with it, the likelihood that the Fed will raise interest rates. Actual figures beating consensus tend to be USD bullish.

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