Gold prepares for further breakdown ahead of US NFP data

Gold price seems fragile above $1,930.00 as the US labor market remains resilient while wage growth slows.
Janet Yellen calls Fitch’s downgrade to US government long-term credit rating ‘entirely unwarranted’.
Investors await US Services PMI, monthly Factory Orders, and weekly jobless claims data.

Gold price (XAU/USD) struggles to sustain above the immediate support of $1,930.00 as the United States labor market data arrives more resilient than expectations. Stellar additions to private payrolls in July indicate that the Nonfarm Payrolls (NFP) report should outperform consensus on Friday. Additionally, Federal Reserve (Fed) policymakers may now consider a continuation of the rate-tightening cycle at its September policy meeting.

Strength in the US Dollar Index backed by a cautious market mood due to the Fitch downgrade also builds pressure on the Gold price. Apart from that, weak Gold demand reported by the World Gold Council (WGC) is consistently building pressure on the Gold price. Meanwhile, investors await ISM Services PMI data for further guidance.

Daily Digest Market Movers: Gold price awaits US NFP data

Gold price looks set for a further breakdown as US labor market data turns out more resilient than expected.
ADP reported on Wednesday that the US domestic labor market added an estimated 324K positions in July. The economic data outperformed expectations of 189K but remained lower than employment additions in June of 497K.
Nela Richardson, chief economist at ADP, said, “The economy is doing better than expected, and a healthy labor market continues to support household spending.” She further added that the economy continues to see a slowdown in wage growth without broad-based job losses.
Concerning the US wage index, ADP’s Richardson said that annual wages grew at their slowest pace of 6.2% since November 2021. For job changers, pay growth slowed to 10.2%.
Upbeat ADP Employment Change data sets a positive undertone for Nonfarm Payrolls but discomfort for Federal Reserve policymakers as they could consider a further policy-tightening spell in the face of the tight labor market.
Per estimates, the US NFP report might show fresh additions of 200K jobs, slightly lower than June’s 209K. The US Unemployment Rate is expected to remain stable at 3.6%.
Before the US NFP event, Services PMI data will be in focus, which will be published at 14:00 GMT. Unlike the contracting Manufacturing PMI, the service sector has consistently been in an expansionary phase, but analysts expect the July Services PMI to arrive lower at 53.0, below June’s reading of 53.9.
New orders for Services PMI are expected to remain marginally higher at 55.6 against the former release of 55.5.
For the week ending July 28, individuals claiming jobless benefits for the very first time match expectations of 227K. While Q2 Unit Labor Costs expand at a slower pace of 1.6% vs. expectations of 2.6%.
The US Dollar Index is approaching the crucial resistance of 103.00 as the market mood is quite cautious after Fitch downgraded the US government due to fiscal spending and governance issues.
US Treasury Secretary Janet Yellen called Fitch's downgrade to the US government ‘entirely unwarranted’ amid a resilient labor market, spending, and easing inflationary pressures.
JPMorgan CEO Jamie Dimon called the US government's long-term debt rating downgrade ‘ridiculous’ since events on the basis of which it was downgraded were already known.
Gold price is consistently facing pressure this week due to weak Gold demand reported by the World Gold Council (WGC). The agency reported a 2% YoY decline in purchases by global central banks due to higher interest rates and a costly gold price.
Mixed commentary from Fed policymakers baffles investors about Fed policy guidance.
Chicago Fed Bank President Austan Goolsbee favors further policy tightening despite easing inflationary pressures. Atlanta Fed Bank President Raphael Bostic thinks an interest rate hike in September is no longer required.
Meanwhile, Jeffrey Schmid has been appointed Kansas City Fed Bank President.

Technical Analysis: Gold price eyes downside below $1,930

Gold price consolidates in a narrow range above the crucial support of $1,930.00. The precious metal faced selling pressure on Wednesday after slipping below the 20 and 50-day Exponential Moving Averages (EMAs). The yellow metal delivered a breakdown of the Head and Shoulders chart pattern, which confirms a bearish reversal. A decisive breakdown below $1,930.00 would expose the asset to the sound-level support of $1,900.00.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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