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(Kitco News) The outlook for gold has improved after slightly accommodating comments from Federal Reserve Chairman Jerome Powell this week. But can the precious metal maintain this momentum after a double-digit drop on Friday?
Analysts have asked Kitco News to monitor US employment figures for July, which are expected to be released on Friday.
The Fed’s announcement this week was quickly interpreted as dovish once Powell told reporters the United States had failed to make “further substantial progress” to continue the reduction.
“I really focused on some of the market reactions to gold. Real yields continue to sink deeper into negative territory, and gold was waiting to see what came from the Fed. big risk to gold was earlier – decrease in asset purchases than expected, “OANDA senior market analyst Edward Moya told Kitco News.” But the FOMC’s move, for the most part, has reinforced the view that the Fed is still probably a long way from achieving this “substantial progress” from a labor market recovery perspective. “
This shift in perspective reinforces the idea that interest rates will stay low for much longer, which is good for gold, Moya said.
Powell also recognized the Delta variant, which poses an increasing risk to economic growth in the second half of the year.
“At the moment, there is no timeline on when the Fed will decline. The central bank has recognized that the Delta variant could be a problem. This has led to record real interest rates, which is the main factor driving gold here, as well as with the falling US dollar, ”said Bart Melek, head of global strategy for TD Securities.
“We don’t think the Fed is going to take the monetary punch from the market just yet,” Melek said. “For gold to recover further, however, the market needs some sort of conviction that the Fed is willing to sacrifice its goal of price stability in favor of full employment. And that’s kind of what it is. they said this week. “
Analysts do not rule out a further decline in gold. On Friday afternoon, gold recorded significant profit taking as the US dollar rose. December’s Comex gold futures fell 1% on the day and last traded at $ 1,816.90 an ounce.
However, if gold could reverse that drop next week, the precious metal could be in stores for $ 1,850 or even $ 1,870 an ounce.
“We’ve hit the 50-day moving average. The next level is $ 1,852. We might get there if some of the macro data next week isn’t particularly good,” Melek said.
The next level gold will need to cross is $ 1,838, Moya said. “Once we see that level, prices will hit $ 1,850. Then a daily close above $ 1,850 could set the stage for much more technical buying, and we won’t have much resistance before that. $ 1,860-70. “
Longer term, Moya sees the potential for gold to climb to the $ 1,900 per ounce level over the next several months. “Gold has survived a tremendous amount of bearish sentiment and has now started to technically overcome some key levels. It is now ready to reaffirm this long term uptrend,” he said.
It’s all about employment
The event next week that is most likely to push gold one way or the other will be Friday’s July US Non-Farm Payrolls Report.
The consensus forecast calls for the creation of 900,000 jobs and the drop in the unemployment rate to 5.7%.
“Everything revolves around the recovery of the labor market. If we see the non-farm payroll reporting a surprise on the upside, it will stimulate the debate that the labor market recovery is heading for “substantial progress” and that is what is needed for a sharp trigger ” , explained Moya.
If the United States saw more than a million positions added in July, it would disrupt gold, Moya added.
On the flip side, any disappointment on the jobs front could easily push gold to $ 1,852, Melek noted.
Another key report to watch is the number of jobless claims, which must reach pre-pandemic levels before the Fed can begin to decline, analysts said.
Nervousness is also returning to the stock market, which could push more investors to look to gold as a hedge, Moya added.
“We are passing the peak of earnings and the peak of monetary policy support. And that is proving to be a concern for the stock market. Gold will begin to benefit from safe-haven flows once the stock market sells off. “More investors are likely to start picking gold over US Treasuries. Treasury yields are just too low,” he said.
Data for next week
Monday: ISM Manufacturing PMI
Tuesday: Factory orders
Wednesday: ADP non-agricultural employment, ISM non-manufacturing PMI
Thursday: Unemployment claims
Friday: non-farm wages
Warning: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes. This is not a solicitation to trade in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for any loss and / or damage resulting from the use of this publication.
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