- Gold prices extend their gains to three straight weeks, up 0.54%.
- The stellar US jobs data will put further pressure on the Fed, as CPI is looked at next week.
- US-China spats add further uncertainty to the global economic outlook.
Gold prices remained defensive in the New York session after an early US jobs report showed the Federal Reserve was “right” about pushing back recession chatter. However, next week’s data, led by the Consumer Price Index (CPI), suggests that perhaps Fed tightening is working. Meanwhile, XAUUSD is trading at $1773.33, down nearly 1%.
Before Wall Street opened, the US Bureau of Labor Statistics’ July nonfarm payrolls report revealed that 528,000 people had joined the labor market, crushing estimates of 250,000. June’s data was revised upward from 325,000 to 398,000, but the unemployment rate continued its downward path to 3.5% from 3.6%.
As for wages, meaning average hourly earnings, a key component of the jobs report and closely watched by the Fed, rose 0.5% MoM, topping out at 5.1% annually.
Financial market reaction saw the greenback jump, as the US dollar index hit a daily high of around 106.930, while the US 10-year bond yield rose to 2.869%. Additionally, money market futures expect a 75 bps rate hike for the September meeting, while the yellow metal shed $35, hitting a daily low at $1764 a troy ounce.
Furthermore, Fed officials crossed the lines on Thursday. Loretta Mester, Fed president in Cleveland, said a 75 bps rate hike for September was “not unreasonable”. Earlier in the week, St. Louis Fed President James Bullard favored a front-loading rate hike, further cementing the case for the FOMC’s September meeting.
Elsewhere, tensions between the US and China weighed on market sentiment courtesy of US House Speaker Pelosi’s visit to Taiwan. After Pelosi’s visit ended, China conducted aggressive military drills around Taiwan and announced sanctions against Nancy Pelosi and her family on Friday.
In addition, China announced it would halt cooperation with the US in certain areas, including climate change and defense, while sending warships across the center line of the Taiwan Strait.
Hence, the price of the yellow metal will remain under pressure. Unless gold buyers decisively push prices above $1800, the unyielding metal is vulnerable to further selling pressure.
What to watch
Next week, the US economic calendar will include inflation data, including consumer and producer indexes, initial jobless claims and University of Michigan consumer sentiment for August.