Gold Prices Stabilize Near Three-Week Lows Ahead of US ISM Services PMI
Introduction
In the run-up to the highly anticipated US ISM Services PMI, the gold price (XAU/USD) finds itself hovering near three-week lows. Investors are keeping a close eye on various factors, including conflicting US Jobless Claims and Q2 Unit Labour Cost data, as they await the ISM Services PMI to get a clearer direction for the precious metal’s movement.
The Tug of War on Gold Price
Immediate Support Holds, But Downside Favors
Gold prices have found support at the $1,930.00 immediate level, but the prevailing sentiment indicates a more favorable downside potential. This outlook comes as the US labor market data surprises with stronger-than-anticipated numbers, setting the stage for potential shifts in market dynamics.
US Labor Market Surprises
The latest data on the US labor market showed impressive numbers. ADP’s report indicated an estimated 324K new positions were added in July, surpassing the expectations of 189K but falling short of June’s 497K increase in employment. Despite widespread job losses, pay growth in the economy has slowed down, and annual salary growth in the US hit its lowest level since November 2021 at 6.2%. Moreover, pay growth for those changing jobs declined to 10.2%.
Implications for Nonfarm Payrolls
The robust ADP Employment Change data creates a strong undertone for the Nonfarm Payrolls report, scheduled for release on Friday. However, officials at the Federal Reserve might feel uneasy about tightening policies further, given the tight job market and the potential implications for the broader economy.
Services PMI in Focus
The Services PMI data, set to release at 14:00 GMT, will take the spotlight ahead of the US NFP event. While the service sector has been in an expansionary phase compared to the contracting manufacturing sector, analysts expect a slight decline in the July Services PMI to 53.0, down from June’s reading of 53.9. New orders for the Services PMI are projected to remain slightly higher at 55.6 compared to the previous publication of 55.5.
Other Key Data to Consider
In addition to the US Services PMI data, investors will closely monitor the Q2 Unit Labor Costs, weekly Initial Jobless Claims, and monthly Factory Orders. These data points can provide further insights into the health of the US economy and potential influences on the gold market.
Market Sentiment and US Dollar Index
Caution Amid Fitch Downgrade
Market sentiment remains cautious due to Fitch’s downgrade of the US government’s long-term debt rating. The downgrade was attributed to concerns over fiscal spending and governance difficulties. As the US Dollar Index approaches the key resistance of 103.00, investors remain watchful of potential market reactions.
US Treasury Secretary’s Rebuttal
US Treasury Secretary Janet Yellen expressed dissatisfaction with Fitch’s decision, deeming it “entirely unwarranted.” She cited the country’s robust labor market, strong consumer spending, and abating inflationary pressures as indicators of the US government’s sound economic fundamentals.
Jamie Dimon’s Perspective
JPMorgan CEO Jamie Dimon criticized the downgrade, considering the circumstances leading to it were already known. He referred to the drop in the US government’s long-term debt rating as “ridiculous.”
World Gold Council’s Assessment
The World Gold Council (WGC) added pressure on the gold price this week, reporting weak gold demand. The agency recorded a 2% YoY fall in purchases by international central banks, attributing it to increased interest rates and expensive gold prices.
Conclusion
The gold market faces a tug-of-war between immediate support and the potential for further decline. Strong US labor market data, cautious sentiments surrounding the US Dollar Index, and the World Gold Council’s report on weak demand all play crucial roles in shaping the precious metal’s trajectory. As investors await key economic data, including the ISM Services PMI and Nonfarm Payrolls, the gold price remains in the spotlight for traders and analysts alike.