Gold waits for fundamental spark
It’s a new month but nothing much has changed for gold.
Despite the brief action witnessed last week, prices remain trapped within range with support at $1792 and resistance at $1830.
The precious metal is clearly waiting for a potent fundamental catalyst that could come in the form of the US jobs data on Friday.
Before we dig into the pending NFP report, it is worth keeping in mind that the ADP National Employment Report for July missed market expectations. Private sector employment increased by 330,000 jobs last month, which was well below the 690,000 market estimate. According to the ADP, the drop in job creation at private companies was caused by fears over the spreading coronavirus delta variant. Despite the weak correlation between the ADP’s data and NFP, it may be used as a very rough guide over how the labour market is faring.
Markets are expecting the US economy to have created 875,000 jobs in July.
Such a figure if confirmed would mark the highest NFP number for 2021. Now given how the Federal Reserve has stated that “substantial further” progress was still needed in areas including employment, the pending jobs report will most likely influence rate hike expectations.
Over the past few weeks, Federal Reserve Jerome Powell has remained persistently dovish despite signs of rising inflationary pressures and US economic recovery. If the US nonfarm payrolls data for July exceed's market expectations, this may fuel speculation over the Federal Reserve tightening policy sooner than expected. Such a development could inject dollar bulls with a renewed sense of confidence, ultimately pressuring gold prices. On the flip side, a disappointing report that fails to meet forecasts could deal a blow to the dollar, providing gold bugs some breathing room to strike.
In the meantime, gold seems to be drawing minor support from a shaky dollar, subdued Treasury yields and jitters over the spread of the delta Covid-19 variant threatening the global economic recovery.
Should these themes hold for the rest of the week, gold should remain supported ahead of the US jobs report on Friday.
Looking at the technical picture, it's the same old story until gold can break out of the current range. Although prices are trading marginally above the 200-day Simple Moving Average (SMA) as of writing, bulls may still need to put in extra work to conquer the $1830 resistance and beyond. If the precious metal can end the week above $1830, the next key levels of interest can be found at $1850, $1874, and $1900. Alternatively, sustained weaken below $1830 could result in a decline back towards the $1792 support level. Below this point, bears have the potential to attack $1760.