Gold remains a strong bullish candidate, yet increasing caution is evident as investors await upcoming U.S. employment data and its potential impact on Federal Reserve policy decisions. With the North American markets closed on Monday for Labor Day, the shortened trading week is anticipated to bring volatility, particularly with next week’s employment figures expected to sway market movements.
Currently, gold prices are consolidating at a crucial support level, trading near record highs. December gold futures were last recorded at $2,538.30 per ounce, marking a 0.3% decline from the previous week.
Silver is also experiencing pressure, struggling to maintain support above $30 per ounce. December silver futures traded at $29.335 per ounce, down 3% from last week.
The dynamics of the gold market are influenced by fluctuations in the U.S. dollar. Despite a notable rise above $2,500, gold’s market remains neither overheated nor excessively bought. Analysts suggest that the U.S. dollar’s recent weakness may be exaggerated, which poses risks to precious metals.
Matt Simpson, a Market Analyst at CityIndex, highlighted potential concerns for gold. “Large speculators’ net-long positions are just 44,000 contracts short of a record high, with a bullish-to-bearish contract ratio of 5.5 to 1. This indicates that many investors are skeptical of the gold rally, which overall is a bullish signal,” Simpson told Kitco News.
He added, “However, the near-term threat lies in potential complacency among traders shorting the USD. We’ve observed heavy USD selling over the past two months, and bond yields are still above their August 2 lows. The USD may be oversold in the short term, and any positive surprise in next week’s ISM or employment data could trigger USD short covering and lead to a gold pullback.”
Han Tan, Chief Market Analyst at Exinity, noted that gold prices are closely tied to Federal Reserve expectations. “Traders are now focused on data to determine the Fed’s actions. Although gold remains near record highs, traders are hesitant to push for further gains due to uncertainty about the Fed’s ability to deliver the expected rate cuts by the end of 2024,” Tan said.
The CME FedWatch Tool indicates that markets fully anticipate a 25-basis point rate cut by the Federal Reserve in September, with a 30.5% probability of a 50-basis point reduction. Tan suggested that if the unemployment rate decreases to 4.2%, this might lead to a dip in gold prices below $2,500 as market expectations for a more significant rate cut are adjusted. He expressed doubt that the Fed would implement a 50-basis point cut, citing concerns about signaling the Fed as lagging behind the curve.
Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, emphasized that the Federal Reserve’s actions will hinge on Friday’s employment data. “If the labor market appears weaker than expected, it might only be a temporary setback. We believe the Fed will take a more gradual approach,” Aslam said.
Phillip Streible, Chief Market Strategist at Blue Line Futures, expressed cautious optimism for gold. He advised that any potential weakness in gold prices could present buying opportunities, but recommended a careful and incremental approach to building positions.
Historically, September has been a challenging month for gold. As traders prepare for next week, they will also need to consider other significant reports, including data on manufacturing and the service sector. Additionally, the Bank of Canada is expected to hold a monetary policy meeting next week, with markets anticipating another rate cut amid weakening inflation and economic conditions.
