In the Asian session on Friday (September 6th), spot gold traded in a narrow range and is currently trading near $2,517.22 per ounce, holding onto most of the overnight gains. Gold prices rose to a one-week high on Thursday due to a weakening US dollar and declining yields, as signs of labor market weakness increased investors' expectations of a large-scale rate cut by the Fed this month.
The number of hirings by US private employers in August was the lowest in three and a half years, which may indicate a sharp slowdown in the labor market. Previous data released on Wednesday showed a sharp decline in US job openings in July.
Phillip Streible, Chief Market Strategist at Blue Line Futures, said that after the release of the ADP data, the price of gold surged, which indeed indicates that "the labor market is in a severe state and people are very worried about it."
The ADP National Employment Report released on Thursday showed an increase of 99,000 private sector jobs in August, the smallest gain since January 2021. The July gain was revised down to 111,000 jobs from the previous 122,000. Economists had previously forecasted an increase of 145,000 private sector jobs in August.
Dragged down by the data, US Treasury yields fell on Thursday, with the yield on the two-year government bond, which is sensitive to interest rates, hitting a 15-month low.
The yield on the two-year government bond, which is sensitive to interest rates, fell 1.6 basis points at the end of Thursday to 3.754%, touching 3.713% earlier, the lowest since May 2023. The yield on the 10-year government bond fell 3.2 basis points on Thursday to 3.736%, hitting a low of 3.721%, the lowest since August 4th.
The Institute for Supply Management (ISM) report showed that employment in the US service sector cooled down in August, but it did not indicate a sudden slowdown in the labor market.
The Institute for Supply Management (ISM) announced on Thursday that the non-manufacturing purchasing managers' index (PMI) rose slightly to 51.5 in August, compared to 51.4 in July.
A PMI above 50 indicates growth in the service industry, which accounts for more than two-thirds of economic activity. ISM believes that a PMI index above 49 usually indicates overall economic expansion in the long term. Economists had previously predicted that the service sector PMI would decrease to 51.1. This report, along with strong consumer spending in July, indicates continued economic expansion, although at a slower pace compared to last year.
The unemployment rate in July jumped to a near three-year high of 4.3%, causing concerns about an economic recession and raising expectations that the US Federal Reserve may lower interest rates significantly by 50 basis points this month when it initiates a loose monetary policy cycle.
According to the CME FedWatch tool, traders currently believe there is a 59% chance that the Federal Reserve will cut interest rates by 25 basis points this month, and a 41% chance of a 50 basis points cut.
The new orders index from the ISM survey rose from 52.4 in July to 53.0. The employment index for the service industry decreased from 51.1 in July to 50.2.
The labor market is slowing down, but it has not significantly worsened. Data released by the government on Wednesday showed that in July there were 1.07 job openings for every unemployed person, down from 1.16 in June.
The inflation rate in the service industry last month remained virtually unchanged. The ISM service input price index increased slightly from 57.0 in July to 57.3. Price pressures in the economy are weakening due to increased borrowing costs suppressing demand.
ADP data performed poorly, dragging down the US dollar index by 0.23% on Thursday, marking the second consecutive trading day of decline. It reached a low of 100.95 during the session and closed at 101.06. However, Thursday's data showed that the number of initial jobless claims in the US decreased slightly last week, as there were still relatively few layoffs. This limited the downward pressure on the US dollar and also temporarily put pressure on gold prices during Thursday's session.
As of the week ending August 31, the number of initial claims for state unemployment benefits decreased by 5,000 people, adjusted for seasonal factors to 0.227 million, the lowest level since early July. Economists had previously forecasted 0.23 million people.
"People vaguely feel that the economy is about to decline, but the latest data does not show this," said Adam Button, Chief Currency Analyst at Toronto Forexlive. "I think the market will debate whether the interest rate cut will be 25 or 50 basis points at each data point."
The initial jobless claims report helps alleviate concerns about the labor market deteriorating.
San Francisco Fed President Daly stated on Wednesday that the Federal Reserve needs to cut interest rates to maintain the health of the labor market, but the magnitude of the rate cut will depend on the upcoming economic data.
Attention will turn to the Non-Farm Payrolls (NFP) report to be released on Friday.
According to a Reuters survey, it is expected that job growth in August will accelerate, with non-farm payrolls expected to increase by 0.16 million, exceeding the increase of 0.114 million in July. The unemployment rate for August is expected to drop to 4.2%.
Technically, gold prices found support near the Bollinger Band midline and rose again, not only regaining the 2500 level but also recovering the 5-day and 10-day moving averages. Short-term bullish signals have strengthened, but caution is needed against the possibility of gold prices hitting new all-time highs again. However, the MACD green bars remain, leaving the possibility of gold prices oscillating at high levels. Watch out for support near the 10-day moving average of 2509.27 and the 5-day moving average of 2504.33.
At 07:44 Beijing time, spot gold is now trading at $2517.52 per ounce.