Gold retreats amid upbeat ADP labor data and weak gold demand reported by WGC

Gold price faces immense pressure as US labor market data turns out extremely tight than expected.
The US Dollar Index rebounds as US ADP reports fresh additions of 324K payrolls vs. estimates of 189K.
The impact of a decline in Gold demand, reported by the World Gold Council, starts fading.

Gold price (XAU/USD) falls back quickly as US Automatic Data Processing (ADP) reports that the United States labor market is flooded with fresh 324K private payrolls in July while investors anticipated additions of 189K but lower than June's reading of 497K. The precious metal drops as the impact of a decline in gold demand reported by the World Gold Council (WGC) renews and investors digest the contracting spell of factory activities for the third quarter in a row.

The employment data set a positive undertone for the interest rate decision by the Federal Reserve (Fed) for its September monetary policy meeting as labor market conditions have remained extremely tight.

Daily Digest Market Movers: Gold price drops as US ADP labor report remains resilient

Gold price remains sideways around $1,950.00 as investors await United States labor market data for further guidance.
The precious metal witnessed heavy selling on Tuesday after the World Gold Council reported a decline in Gold demand by global central banks. Gold purchased by central banks in the first half of 2023 dropped by 2% YoY amid higher interest rates and costly bullion.
In addition to that, a significant recovery in United States factory orders kept the Gold price on a bearish trajectory.
US new factory orders surprisingly rose to 47.3 in July from downwardly revised expectations of 44.0 against June’s reading of 45.6.
The Institute of Supply Management (ISM) reported that Manufacturing PMI contracted for the ninth month in a row. July’s figure edged up to 46.4 from a previous figure of 46.0 but failed to match expectations of 46.8. All figures under 50.0 are contractionary.
A straight three-quarter contraction in the Manufacturing PMI is sufficient enough to display the consequences of an aggressive rate-tightening cycle by the Federal Reserve.
US JOLTS Job Openings dropped in July to 9.582M from its expectations and former reading. The July data recorded its lowest reading in more than two years as job changes waned due to easing wage growth.
For more guidance about the labor market, investors will focus on the US Nonfarm Payrolls (NFP) and the Unemployment Rate, which will be published on Friday at 12:30 GMT.
But before that, the entire focus will be on Automatic Data Processing Employment Change, which will be released at 12:15 GMT. Per estimates, US ADP will report the addition of fresh private payroll data in July by 189K vs. the strong addition of 497K recorded in June.
Tight labor market conditions could force the Fed to raise interest rates further in September monetary policy meeting.
Chicago Federal Reserve Bank President Austan Goolsbee said on Tuesday that inflation is on track to return to 2% without elevating the jobless rate significantly.
The US Dollar Index (DXY) demonstrated a stellar recovery on Tuesday despite Fitch downgrading the United States government’s credit rating, citing concerns over forward fiscal spending.

Technical Analysis: Gold price sets for an H&S pattern breakdown

Gold price finds some support after printing a fresh three-week low at around $1,940.00 ahead of key labor market data. The precious metal trades below the 20 and 50-day Exponential Moving Averages (EMAs), which indicates that the short and mid-term trend is bearish. Gold price forms a Head and Shoulders chart pattern on a lower time frame and a breakdown will occur if the asset fails to defend the neckline plotted around a fresh three-week low.

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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