Gold, XAU / USD, Covid, NFP – call points
- Gold prices may be prepared to continue the recent benefits of safe haven appeal
- XAU /USD focused on the US labor market as the initial demands of the unemployed, NFP close
- Technical the posture looks to reap more benefits after a bullish SMA crossover
The price of gold appears to be poised to continue to rise as traders assess market conditions cautiously against the downturn. Gold turned sharply higher in early August and erased the sharp decline from the beginning of the month, when the yellow metal reached its lowest level in several months. This decline was based on the view that the US economy is well prepared to provide the Federal Reserve with what it needs to raise interest rates: a strong labor market. The July Non-Agricultural Payroll Report (NFP) crossed the lines by 943,000 compared to 870,000.
The US labor market is now a key component of the Federal Reserve, given that inflation has already exceeded the 2% target. This pays close attention to economic data on employment for market participants. For yellow metal, it simply means “more jobs = bad, fewer jobs = good”. Of course, there are other factors at stake, but from a broad perspective, Fedi’s path is arguably the most appropriate.
The growing proliferation of the Covid Delta variant poses a major threat to this goal. Viral cases, hospitalizations and deaths have recently reached their highest levels since January (see table below). Gold’s safe haven may be one of the reasons for its recent strength, and Covid’s perceived impact on the U.S. labor market (and thus its impact on the long-term holding of the Federal Reserve) may be another headwind.
With this in mind, this Friday’s August NFP report is likely to be the main driving force. According to a Bloomberg study, the average consensus estimate is + 725k. ADP’s private sector estimate, which preceded the official NFP report released earlier this week, showed only 374,000 jobs. It is important to note, however, that ADP data have differed significantly over the past year from those reported by the Bureau of Labor Statistics (BLS). The market gives the latter more weight.
Traders will have another data point before Friday to help assess the strength of the U.S. labor market. Weekly initial and ongoing jobless claims exceed wires on Thursday. Economists estimate that the initial claims will show 345 thousand in the week ending August 28, while the continuing claims will show 2.77 million. Both estimates represent a decrease compared to the previous reporting period. If these results turn out better than expected, it could lower the gold in Friday’s NFP report.
Golden Technical Forecast:
Gold’s technical attitude became brighter after the XAU / USD broke above the top of the descending channel after abruptly moving above the lower limit of the formation. The yellow metal outperformed the rapidly declining 200-day Simple Moving Average (SMA) and is currently battling the 100-day SMA. Moreover, the 100-day SMA exceeded the 200-day SMA last week, which is a bullish sign.
In the lower step, a 200-day SMA step can be seen to provide support, with the channel impedance being less than that offering the potential to receive support. An intermediate level of support can be provided by 78.6% Fibonacci retracement from the July / August move. This July’s highest at 1834.14 is XAU’s current uptrend.
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– Written by Thomas Westwater, DailyFX.com analyst
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