- XAU/USD pulls back as traders book profits ahead of NFPs, despite 98% probability of Fed rate cut this month.
- US Jobless Claims rise while trade deficit widens; ISM Services PMI posts strongest expansion in six months.
- Political turmoil, tariff rulings and Fed independence concerns keep safe-haven demand in play for Gold.
Gold price edges lower during the North American session on Thursday as the Greenback recovers some ground, even though the latest round of economic data increased speculation that the Federal Reserve may cut interest rates at the September meeting. The XAU/USD trades at $3,542, down 0.48%.
Bullion eases 0.48% despite weak US jobs data fueling near-certainty of a September Fed rate cut
The US economic docket revealed that the labor market continues to weaken after Initial Jobless Claims for the previous week rose. Other data showed that the trade deficit widened in July, while the Institute for Supply Management (ISM) Services PMI expanded at its fastest pace in six months.
Although the data is mixed, market participants had prioritized jobs data after the Fed Chair Jerome Powell acknowledged that the labor market is softening, at his Jackson Hole speech. Expectations that the Fed will reduce interest rates by 25 basis points (bps) are at 98%, according to the Prime Market Terminal interest rate probabilities tool.
During the day, the US Dollar continues to recover as traders book profits ahead of the Nonfarm Payrolls report, which is expected to show the economy added 75K new jobs to the labor market and that the Unemployment Rate would rose slightly to 4.3%.
Nevertheless, Gold traders need to be cautious due to uncertainty about US President Trump’s policies, new tariffs, and the ongoing battle of his administration with Fed Governor Lisa Cook, who has been accused of committing mortgage fraud.
Further uncertainty around this case, and about the US Court of Appeals finding some of Trump’s tariffs “illegal,” could drive Gold prices higher.
Daily digest market movers: Gold price weighed by US Dollar strength
- Bullion traders had been digesting a busy economic docket. Initial Jobless Claims for the week ending August 30 rose by 237K above estimates of 230K, up from the prior print at 229K.
- The US Department of Commerce revealed that the Trade Balance deficit widened in July to a four-month high, from $-59.1 billion to $-78.3 billion, more than forecasts of $-75.7 billion. The data revealed that companies rushed to secure supplies before tariffs became effective. The report showed that the deficit with China widened for the first time, while with Mexico widened slightly.
- The ISM Services PMI in August expanded to 52, up from 50.1, exceeding the forecast for an increase to 51. Despite easing, the prices-paid sub-component at 69.2 was the second highest since late 2022, showing the impact of tariffs.
- The ADP Employment Change in August rose by 54K, below forecasts of 65K, but July figures were upward revised from 104K to 106K. Dr. Nela Richardson, chief economist ADP, said that “the year started with strong job growth, but that momentum has been whipsawed by uncertainty…A variety of things could explain the hiring slowdown, including labor shortages, skittish consumers, and AI disruptions.”
- New York Fed President John Williams said that he expects gradual interest rate cuts over time, if the economy meets his forecasts. The Fed Board Nominee Stephen Miran said that the Fed’s independence is of paramount importance and declined to answer if he would advise Trump not to fire Fed members.
- US Treasury yields are falling, with the 10-year Treasury note down over three and a half basis points (bps) to 4.183%. US real yields—calculated by subtracting inflation expectations from the nominal yield—have decreased nearly four basis points to 1.78% at the time of writing.
- The US Dollar Index (DXY), which tracks the performance of the buck’s value against a basket of six currencies, is up 0.25% at 98.39 as of writing.
Technical outlook: Gold price poised to challenge $3,500 in the near term
Gold uptrend stalled as traders book profits with XAU/USD retreating below the crucial $3,550 figure. The Relative Strength Index (RSI) is aiming lower, toward the 70 level in overbought territory. However, sellers need to push Gold prices below the $3,500 figure to put the uptrend in question.
Once XAU/USD clears $3,550, then traders can challenge the all-time high of $3,578. If surpassed, the next ceiling level would be $3,600. Conversely, a drop below $3,550 will expose $3,500, followed by the August 29 high of $3,454, before sliding to $3,400.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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