On Thursday (September 5th), spot gold fluctuated narrowly in the Asian market, currently trading around $246.45 per ounce. The price of gold hit a two-week low of $2471.77 per ounce on Wednesday, but later rebounded to close at $2495.45 per ounce. This was due to the fall in the US dollar and US Treasury bond yields, as well as the decrease in US job vacancies, which raised expectations of a 50 basis point interest rate cut by the Federal Reserve in September.
The number of job vacancies in the United States has fallen to the lowest level in three and a half years, but it may not be enough to trigger a significant interest rate cut by the Federal Reserve.
The number of job vacancies in the United States in July has fallen to the lowest level in three and a half years, suggesting a loss of momentum in the labor market. However, this decline may not be enough to prompt the Federal Reserve to consider a significant interest rate cut this month.
The Job Openings and Labor Turnover Survey (JOLTS) released by the US Department of Labor on Wednesday showed a larger-than-expected decrease in job vacancies in July. In July, there was an average of 1.07 job vacancy per unemployed person, the lowest since May 2021, down from 1.16 in June. The ratio of job vacancies to unemployed persons reached a peak slightly above 2.0 in 2022.
However, the labor market may not be deteriorating. The Federal Reserve stated in its Beige Book report that employment levels have remained stable or slightly increased in recent weeks.
Investors and Federal Reserve officials are closely monitoring the labor market. The previous four consecutive months of rising unemployment rates have heightened concerns about an economic recession. Economists are sticking to their predictions that the Federal Reserve will cut interest rates by 25 basis points at the meeting on September 17th to 18th. This will largely depend on the August employment report scheduled to be released on Friday.
"Does this report suggest the need for a 50 basis point interest rate cut in September?" asked Conrad DeQuadros, Senior Economic Advisor at Brean Capital. "We would say no, because... the ratio of job vacancies to unemployed persons is still high by historical standards."
The U.S. Bureau of Labor Statistics reported that on the last day of July, job vacancies decreased by 0.237 million from the end of June to 7.673 million, the lowest level since January 2021. The number of job vacancies at the end of June was revised down to 7.91 million, compared to the previous value of 8.184 million. Job vacancies are an indicator of labor demand.
Economists had previously predicted that the number of job vacancies in July would be 8.1 million. The number of job vacancies peaked at 12.182 million in March 2022, and has decreased by 1.1 million over the past year. The decrease in job vacancies is mainly concentrated in small businesses. The job vacancy rate decreased from 4.8% in June to 4.6%, the lowest level since December 2020.
The number of hires increased by 0.273 million to reach 5.521 million. The hiring rate increased from 3.3% in June to 3.5%. The number of layoffs increased by 0.202 million to reach 1.762 million, the highest level since March 2023. However, from a historical perspective, the number of layoffs is still relatively low.
The layoff rate increased from 1.0% in June to 1.1%, still at a relatively low level. The Beige Book report released by the Federal Reserve on Wednesday also emphasized the low number of layoffs. The Beige Book showed that five regions reported slight or modest increases in overall employment by the end of August.
However, the report pointed out, 'Some regions reported that businesses reduced shifts and working hours, left job vacancies unfilled, or reduced staff numbers through natural attrition, but layoffs remained low.'
Expansion of the U.S. trade deficit
A report released by the U.S. Bureau of Economic Analysis at the Department of Commerce on Wednesday showed a 7.9% expansion of the trade deficit, reaching the highest level since June 2022 at $78.8 billion, highlighting strong domestic demand.
Commodity imports increased by 2.3%, reaching the highest level since June 2022 at $278.2 billion. Capital goods imports increased by $3.3 billion, reaching a record high, mainly due to computer components.
The Biden administration previously announced plans to impose higher tariffs on electric cars, batteries, solar energy products, and other goods imported from Asian countries.
The U.S. government stated last week that it will announce the final decision in the "coming days." There are also concerns that if former President Trump returns to the White House after the November 5th election, higher tariffs will be imposed on goods from Asian countries.
The politically sensitive trade deficit with China increased by $4.9 billion, reaching $27.2 billion.
Exports grew by 0.5%, reaching $266.6 billion. Goods exports grew by 0.4%, reaching $175.1 billion. After adjusting for inflation, the goods trade deficit was $97.6 billion, an increase of 6.9%.
Fed Beige Book: The pace of economic expansion in the United States has slowed, and businesses have reduced hiring.
From mid-July to late August, the pace of economic expansion in the United States has slowed, and businesses have reduced hiring. These signals highlight the reasons the Fed will begin cutting interest rates later this month.
The latest health check report from the Fed on the state of the economy also shows moderate inflation pressure. Of the 12 Fed districts, all except one report widespread easing of input costs.
"Economic activity increased slightly in three districts, while the number of districts reporting flat or declining economic activity increased from five in the previous report to nine in the latest report," the Fed said on Wednesday in its survey report known as the "Beige Book," which surveyed business contacts at each Fed district bank up to August 26th. "Employers are more selective in hiring and less willing to expand their employee base, citing concerns about demand and uncertain economic prospects."
Federal Reserve Chairman Powell and his colleagues have made it clear that they intend to lower the benchmark interest rate from the current range of 5.25%-5.50% at the policy meeting on September 17-18, which has been maintained for over a year. The only uncertainty is whether the benchmark interest rate should be lowered by 25 basis points in response to a weak labor market or by a larger 50 basis points.
According to this report, which is published approximately every six weeks, consumer spending in most Federal Reserve districts has declined, while it remained stable in the previous reporting period.
Federal Reserve official Bosstick warned against maintaining restrictive policies for too long, as it would harm the job market.
Atlanta Federal Reserve President Bosstick said on Wednesday that the Federal Reserve should not maintain high interest rates for too long, as it could cause significant damage to employment.
In an article published on the Atlanta Federal Reserve's website, Bosstick said, "We cannot maintain a restrictive policy stance for too long."
He said that waiting until the inflation rate actually falls back to the Fed's target of 2% before lowering borrowing costs would "pose a risk to the labor market and could cause unnecessary pain."
Bosstick added that recent reports of price increases have strengthened his confidence that the inflation rate is currently on a sustainable path to return to the Fed's target, and pricing pressures are rapidly and widely diminishing.
Bosstick said that business contacts mentioned a slowdown in hiring, but only a few mentioned plans for layoffs.
"I don't feel a collapse is imminent, nor do I sense panic among business contacts. However, the data and feedback from the grassroots indicate that the economy and labor market are losing momentum," Bosstick said.
Atlanta Fed President also said that it is too early to declare victory over inflation and he and his colleagues must remain vigilant.
The interest rate futures market believes that the probability of the Fed cutting rates by 50 basis points or 25 basis points in September is close.
As Federal Reserve policymakers prepare for their policy meeting later this month, they are increasingly focused on the US labor market, and their assessment of the health of the job market will be critical in determining the extent of rate cuts.
Analysts generally expect the Fed to stick to a 25 basis point rate cut, as employers continue to hire albeit at a slower pace, and the unemployment rate, while rising, remains at a relatively low level of 4.3%.
However, after the release of the data on Wednesday, financial markets increased their bets on a significant rate cut by the Fed at the meeting on September 17-18. The interest rate futures market currently sees the possibility of a 50 basis point cut and a 25 basis point cut as close.
Julia Pollak, Chief Economist at ZipRecruiter, wrote: "The report suggests that the labor market is cooling down, and the pace of cooling may be accelerating." She is one of the few analysts who believe the Fed should have started cutting rates in July.
Interest rate futures traders increased their bets on a 50 basis point rate cut by the Fed at the meeting on September 17-18, raising the probability from 41% before the data release to about 49%.
David Meger, the head of metal trading at High Ridge Futures, said: "The data has changed people's expectations, and it is now expected that there is a higher probability of a rate cut of more than 25 basis points at the Fed meeting."
Meger added that the US Labor Department's Job Openings and Labor Turnover Survey (JOLTS) indicates that people expect the economy to slow down, leading to a decline in the dollar and continued interest rate cuts, which has a supportive effect on the gold market.
Federal Reserve officials previously stated that they expect the monthly employment report to be released on Friday and the August Consumer Price Index (CPI) data next week to provide reference for the policy decisions they are about to make.
The dollar fell due to a decrease in US job openings.
The US dollar index fell 0.45% on Wednesday, closing at 101.29, hitting a near one-week low of 101.21. Earlier, the July job vacancy data in the US implied a soft labor market, further increasing the possibility of a significant interest rate cut by the Fed.
The weak US manufacturing data released on Tuesday exacerbated concerns about a hard landing for the world's largest economy.
The dollar fell sharply against a basket of currencies in August by more than 2%, but with the increasing volatility in global financial markets, there has been a demand for safer currencies, and the US dollar has stabilized.
"The dollar has rebounded, but I dare not further rebound until more information is obtained," said Brad Bechtel, global head of foreign exchange at Fruy in a report. "After the data is released on Friday, I estimate that the dollar index will either be 100 or lower, or 104 or higher."
Economists surveyed by Reuters expect Friday's report to show an increase of 0.165 million US jobs in August, up from an increase of 0.114 million in July.
Investors will also closely monitor the jobless claims report on Thursday.
The yield on the two-year US Treasury bond touched a 15-month low.
US Treasury yields fell on Wednesday, with the yield on the rate-sensitive two-year bond touching a 15-month low, after data showed US job vacancies in July dropped to a three-and-a-half-year low.
The closely watched spread between the two-year and 10-year US Treasury yields turned positive for the first time since August 5th.
The yield on the two-year Treasury bond fell 10.5 basis points to 3.783% at the end of Wednesday's session, reaching its lowest level since May 2023, hitting 3.772% intraday.
The 10-year Treasury yield fell 6.6 basis points to 3.778% on Wednesday, previously hitting its lowest level since August 20th at 3.767%.
Ian Lyngen, head of US rate strategy at BMO Capital Markets in New York, said: "The highlight of this week is the job report on Friday. It will largely provide us with the expected roadmap for the Federal Reserve. Job data has now overshadowed inflation and become the biggest risk to policy expectations."
Traders believe that there may be a cut of 237 basis points by the end of 2025.
According to the median estimate of economists surveyed by Reuters, the US unemployment rate is expected to drop from 4.3% in July to 4.2%.
Technical Analysis
Looking at the daily chart, the gold price is still suppressed by the 5-day moving average, with MACD and KDJ showing a bearish crossover signal. It is still necessary to beware of the further downside risk of the gold price, continue to focus on the support of the Bollinger Band midline, currently around 2475.26, with key support near the August 2nd low of 2470.69. If this support is broken, it may open a short-term downward trend.
Pay attention to the resistance near the 2500 level and the 10-day moving average of 2506.64 above. If there is an unexpected breakthrough of the 10-day moving average, it would increase the short-term bullish signal.
At 08:08 Beijing time, spot gold is now trading at $2495.42 per ounce.