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James Hyerczyk

Gold futures traded lower on Friday, falling nearly 2% as it snapped its record-breaking rally, after a slightly better-than-expected U.S. jobs report boosted the U.S. Dollar. A stronger dollar tends to reduce foreign demand for the dollar-denominated asset.

Despite the setback, the market is still on-track to finish the week higher, continuing its longest streak of weekly gains in about a decade. Losses may have been limited by signs of a worsening pandemic in the United States and other major counties.

At 20:17 GMT, December Comex gold is trading $2041.60, down $33.60 of -1.91%.

The U.S. Dollar strongly rebounded from a two-year low, after the U.S. non-farm payrolls increased by 1.763 million jobs last month and on renewed U.S.-China tensions. The July Unemployment Rate fell to 10.2% from its previous 11.1%.

Both numbers were better than respective Wall Street forecasts of 1.48 million and 10.6%.

Even with a three-month gain of 9.3 million workers either newly hired or back to their old jobs, the total employment level remained 12.9 million below its February level.

An alternative measure that includes discouraged workers and the underemployed holding part-time jobs for economic reasons fell from 18% to 16.5%.

The total unemployment level is at 16.3 million Americans, a decline of more than 1.4 million, according to the survey of households. That compares with a peak of nearly 23.1 million in April.

Short-Term Outlook

Friday’s price action suggests gold prices are vulnerable to a correction over the short-run. However, this would probably be welcomed news since the market is a little pricey according to most standards.

With the government eventually announcing a fiscal stimulus package, any short-term correction is likely to attract new buyers, especially if the market retreats into a value area.

The long-term direction of the market remains well supported by expectations of additional stimulus measures from the Fed, probably some time in September.

As far as the jobs report is concerned, there is evidence that the resurgence in new virus cases caused the economic recovery to slow, but also underlines that it has not yet gone into reverse.

Gold could begin to feel some short-term pressure if the number of new infections begins to clearly trend lower. Additionally, some activity indicators are also starting to show signs of a renewed upturn. This could help limit gains if further confirmed. Finally, the labor market is also expected to continue its rebound, which is another reason why the market could feel some downward pressure.

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