Price of Gold Fundamental Daily Forecast – After Weak Manufacturing Data, ADP is Report to Watch

Gold futures are inching higher early Wednesday as investors await the release of the ADP Non-Farm Employment Change report at 12:15 GMT. This report has taken on added importance following Tuesday’s disastrous U.S. report on factory activity that fanned the flames of recession, while driving up the chances of a rate cut by the U.S. Federal Reserve at the end of the month.

At 10:33 GMT, December Comex gold futures are trading $1489.00, unchanged. This follows a dramatic turnaround in prices on Tuesday that saw gold hit its lowest level since August 5 at $1465.00, only to close at $1489.00, up $16.10 or +1.09%.

Today’s ADP report could offer clues to traders on the strength of the labor market, or the next part of the economy to be scrutinized after Tuesday’s manufacturing report showed an unexpected decline.

According to CNBC, the ADP report “is expected to show that 140,000 payrolls were added in September following 195,000 in its report in August. That August number was not a good barometer for the much lower government report of just 96,000 private payrolls in August, but it will be watched nonetheless. Total payrolls were 130,000 in August, including government workers.”

On Tuesday, the ISM manufacturing survey for August declined to 47.8, its weakest reading since June, 2009. Stocks sold off sharply after the report, and investors jumped into the safety of Treasury bonds, the Japanese Yen and gold.

Daily Forecast

The disappointing ISM manufacturing report is making investors nervous about the economy since it represented two consecutive months of contraction. The labor market is not in a contraction, but could be getting close.

As of Tuesday’s close, Treasury traders were pricing in about a 60% of a Fed rate cut at the end of October. This is up from 40% before the release of the weak manufacturing report. It was also enough to stop the selling in gold and chase some of the weaker shorts out of the market.

Having been burned chasing rallies in gold recently, professional investors are likely to take their time and read the data. I don’t expect gold to spike to the upside if the ADP report is weak, but I do expect gold investors to track Treasury yields very closely.

If yields start to fall as investors start to price in another Fed rate cut, then look for gold to begin creeping higher.

Treasury yields are likely to be the best indicator for gold traders. Try not to trade the headlines, watch and react to the movement in yields. Furthermore, gold is also likely to be underpinned if investors start to dump stocks. A weaker U.S. Dollar is also going to be supportive for dollar-denominated gold.