Price of Gold Fundamental Daily Forecast – Underpinned by Disappointing ADP Private Sector Jobs Data

Gold futures are trading steady-to-lower on Wednesday as investors awaited key private sector employment data from ADP and manufacturing PMI results from the Institute of Supply Management (ISM) and Markit. However, some investors have already moved to the sidelines ahead of Friday’s U.S. Non-Farm Payrolls report that could offer clues as to when the Federal Reserve might start reducing its pandemic-era stimulus.

At 12:08 GMT, December Comex gold futures are trading $1814.60, down $3.50 or -0.19%.

The lack of follow-through to the upside following Friday’s upside spike suggests low demand. Indicative of this, holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.2% to 1,000.26 tonnes on Tuesday, its lowest level since April 2020.

Traders Could Be Reassessing Powell’s Jackson Hole Remarks

Last Friday, gold prices shot up after Federal Reserve Chair Jerome Powell, in a speech reaffirmed an ongoing U.S. economic recovery and explained why there is no rush to tighten monetary policy. He also gave a detailed account on Friday of why he regards a spike in inflation as temporary and offered no signal on when the central bank plans to cut its asset purchases beyond saying it could be “this year.”

In his remarks to the annual Jackson Hole economic conference, Powell indicated the Fed will remain cautious in any eventual decision to raise interest rates as it tries to nurse the economy to full employment, saying he wants to avoid chasing “transitory” inflation and potentially discouraging job growth in the process – a defense in effect of the new approach to Fed policy he introduced a year ago.

Gold prices rose sharply not because Powell said something bullish. They rose because gold traders were bearish on the market going into the speech. In the days before Powell’s speech, several Fed regional bank presidents said they were eager to get a taper underway, and to reduce the asset purchases fast, with some arguing the shift was needed to prepare for interest rate increases that may be needed sooner than expected.

Gold traders were short ahead of Powell and they covered those shorts when he failed to reveal the timeline for tapering.

Daily Forecast

“Powell made clear on Friday that the Fed believes the ‘substantial further progress’ criteria has been met for inflation but not for employment and hence the jobs data will continue to be key for policy expectations,” analysts at MUFG said in a note.

In my opinion, this means Powell wants to see “substantial further progress” in the labor market. Ahead of Friday’s Non-Farm Payrolls report, traders are looking for the economy to have added 750,000 jobs and for the unemployment rate to have fallen to 5.2%.

The addition of 1 million jobs will be substantial. This should be bearish for gold because it will likely mean the Fed will announce tapering at its September 21-22 meeting. A reading of 750,000 will make the odds 50/50 for tapering at the meeting. Anything below 500,000 jobs will likely mean the Fed will have to wait until November or December to make the tapering decision. This would likely trigger another short-covering rally in the gold market.