The price of gold surged to its highest level in over a month, breaching the $1,950 mark and marking a second consecutive week of gains. The precious metal saw a boost from declining US yields following disappointing employment-related data releases from the United States. As high-tier data releases are scarce in the coming week, technical factors and developments in global bond yields are poised to shape the trajectory of XAU/USD (the gold-to-US dollar exchange rate).
Recap of Last Week:
China’s Stimulus Announcement: Early in the week, China’s Finance Ministry declared a halving of the stamp duty on stocks trading to 0.1%. This move aimed to invigorate the capital market and bolster investor confidence, setting a positive tone in the financial markets at the beginning of the week. This made it challenging for the US Dollar to build on its previous week’s gains, allowing XAU/USD to register modest daily increases.
US Employment Data: Midweek, disappointing data releases from the US increased speculation that the Federal Reserve (Fed) might refrain from altering its policy rate for the remainder of 2023. The number of job openings in July declined to 8.82 million, while the Bureau of Economic Analysis revised down the annualized second-quarter Gross Domestic Product (GDP) growth to 2.1%. The ADP report for August showed an increase in private sector employment below market expectations. Consequently, US Treasury bond yields plummeted, and the US Dollar Index fell to a two-week low, boosting XAU/USD.
Inflation Data and Unemployment Benefits: Inflation in the US, as measured by the PCE Price Index, rose to 3.3% year-on-year in July, with the Core PCE Price Index climbing to 4.2%. Moreover, the number of initial jobless claims declined. The USD recovered some of its weekly losses on Thursday, but gold remained relatively stable. XAU/EUR also rose, as the ECB was expected to keep key rates unchanged in September after Eurostat reported a rise in Core Harmonized Index of Consumer Prices (HICP).
August Jobs Report: The week concluded with another set of uninspiring employment-related data from the US. Nonfarm Payrolls for August rose by 187,000, slightly surpassing expectations but with the July increase revised lower. The Unemployment Rate increased to 3.8%, and annual wage inflation edged down to 4.3%. The 10-year US yield dipped lower, prompting XAU/USD to climb above $1,950.
Looking Ahead to Next Week:
Labor Day Holiday: US markets will be closed on Monday due to the Labor Day holiday.
ISM Services PMI: On Wednesday, the ISM will release the Services PMI report. While the headline PMI is expected to dip slightly, the Prices Paid Index, measuring input inflation, could impact the USD.
China’s Trade Balance and CPI: Later in the week, China’s Trade Balance data will be closely monitored, as a further deterioration in exports could weigh on gold prices. Additionally, China’s Consumer Price Index (CPI) data may influence XAU/USD, signaling changes in consumer activity and demand.
Central Bank Decisions: The Reserve Bank of Australia and the Bank of Canada will announce their interest rate decisions. While these may not directly impact XAU/USD, changes in global bond yields could influence gold prices, especially if both banks express concerns about the economic outlook.
10-Year US Yield: XAU/USD’s trajectory may be influenced by the 10-year US yield. If it falls below the 4% level and starts using it as resistance, the pair could extend its uptrend.
Overall, without significant high-tier data releases, technical factors and the movement in global bond yields will play a crucial role in shaping the gold-to-dollar exchange rate’s performance in the coming week.
