This Week’s Jobs Report Will Set the Tone for the Next Steps from the FedEver since last Thursday when gold ran from $1806 to $1831 immediately following last month’s FOMC meeting gold has been consolidating with a definitive bias to the downside.
However, recent action has been muted at best with small price changes from day to day, as well as from open to close. It seems as though market participants are waiting for the next big fundamental event which will be the U.S. Labor Department’s jobs report released this Friday.
Because the current monetary policy of the Federal Reserve is data-dependent, it is the jobs report that voting members will look at intently to get a sense of how the economy is rebounding. Therefore, traders and investors will look intently at the upcoming jobs report for July 2021, to get a sense of what the future actions and timeline of the Federal Reserve might look like.
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According to Dow Jones, the jobs report for nonfarm payroll is currently forecasted to show that an additional 788,000 nonfarm payrolls were added last month. This would be a decline from last month’s jobs report for June 2021 which indicated that 850,000 new jobs were added in June. Furthermore, the unemployment rate is expected to decline by 0.2%, from 5.9% to 5.7%. It is also expected that average hourly wages will rise 3.9% year-over-year.
As reported by CNBC, Barry Knapp, Ironside’s macroeconomics director of research, expects that the next two monthly jobs report will come in strong, which would mean that the Federal Reserve would have the necessary data to announce that they are ready to start tapering on their asset accumulation of mortgage-backed securities and U.S. debt in September.
The CNBC article also stated, “That is an important step since it would be the first real move away from the central bank’s easy policies that were put in place in the pandemic. It would also mean the Fed would be open to raising interest rates once the tapering is completed.”
Barry Knapp believes that if the next two jobs report come in with strong numbers as far as U.S. equities are concerned, he is “in the camp where I think we’re going to have our first major correction. What we’re likely to get is at least 10% or more. It could really happen when they [Fed officials] make the announcement in September.”
A 10% correction in U.S. equities should have the opposite effect on gold pricing which would take the precious yellow metal substantially higher. It could propel gold prices back above $1900 per ounce.
As of 5:20 PM EST gold futures basis, the most active December 2021 contract is currently fixed at $1813.40 which is a net decline of $8.80 from the close on Monday. While anything is possible, we will likely see muted action in both U.S. equities, as well as the safe-haven asset class as market participants, await the next important fundamental events that will shape the future actions of the Federal Reserve.
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