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James Hyerczyk
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Comex Gold

Gold futures inched higher last week due to oversold technical conditions and the lack of clarity regarding the next policy move by the Fed. Gold was underpinned by lower Treasury yields, but gains may have been capped by a stronger U.S. Dollar.

Friday’s price action suggests the direction of the market this week is likely to be determined by these two factors as investors continue to digest the details of the latest U.S. Non-Farm Payrolls report.

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Last week, August Comex gold settled at $1783.30, up $5.50 or +0.31%.

One reason why gold prices could be supported this week is because Friday’s report did not significantly change the Fed’s current outlook on interest rate hikes. The report showed the U.S. labor market is still far from its “full employment” mandate.

Treasury Yields Fall After June Unemployment Rate Edges Up to 5.9%.

Gold prices were boosted as U.S. Treasury yields dipped. One reason for the weakness in yields was the June jobs report that showed a slight increase in the unemployment rate.

Job growth leaped higher in June with nonfarm payrolls increasing 850,000, the Labor Department reported on Friday. The number was higher than a Dow Jones estimate of 706,000 and better than the upwardly revised 583,000 in May.

The unemployment rate, however, rose to 5.9% from 5.8% in the prior month, which came in higher than the 5.6% expectation. Wages were up 0.3% for the month and 3.6% year over year, both in line with expectations.

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Dollar Dips after Hitting Three-Month High

Perhaps capping last week’s gains was a rise in the U.S. Dollar to a three-month high. After a price surge early in the week, the dollar retreated following the release of the jobs report.

While the headline June job creation figure beat forecasts, unemployment ticked higher and workforce participation didn’t budge – suggesting positive progress, but space for the Federal Reserve to wait before tapering asset buying or hiking rates.

Weekly Forecast

There is room on the charts for a continuation of last week’s short-covering rally. However, gains are likely to be limited as we approach August because market participants expect the Fed to announce the start of tapering its stimulus at the central bank meeting at Jackson Hole at that time.

This week, the focus for traders will be on minutes from the Fed’s June meeting—due Wednesday—and on a meeting of the Reserve Bank of Australia, with both having the potential to rouse currencies from months of range trading amid uncertainty around policy outlook.

“More information on when the FOMC could taper its asset purchases can boost U.S. interest rates and the dollar,” said Commonwealth Bank of Australia analyst Joe Capurso, referring to the rate-setting Federal Open Market Committee.

For a look at all of today’s economic events, check out our economic calendar.
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