Title: U.S. ADP Private Employment Data Beats Expectations, Putting Pressure on Gold Prices
Date: August 2, 2023
During the New York session on Wednesday, gold prices experienced a rapid decline after the release of better-than-expected U.S. automatic data processing (ADP) private employment figures. According to the report, the U.S. labor market added 324,000 private jobs in July, surpassing investor expectations of a 189,000 increase. This data set a positive tone for the Federal Reserve’s September monetary policy meeting, emphasizing the tightness of the labor market.
The impact of lower gold demand, as reported by the World Gold Council (WGC), also contributed to the decline in gold prices. The WGC highlighted a drop in demand from central banks around the world, with gold purchases down by 2% year-on-year due to rising interest rates and the increasing cost of bars.
Furthermore, gold prices faced additional pressure as investors digested the news of a third consecutive quarter of contraction in factory activity. U.S. factory orders surprised analysts by rising to 47.3 in July, surpassing the expected revised reading of 44.0 and June’s 45.6. This positive factory data further contributed to the bearish trajectory for gold prices.
The Institute for Supply Management (ISM) reported the ninth consecutive month of contraction in the manufacturing purchasing managers’ index (PMI), with July’s figure increasing slightly to 46.4 from 46.0. Although the PMI missed expectations for a reading of 46.8, any figure below 50.0 signifies a contraction. The continuous decline in the manufacturing PMI reflects the impact of the Federal Reserve’s aggressive rate-tightening cycle.
The JOLTS (Job Openings and Labor Turnover Survey) job vacancies in the United States recorded a decline in July, reaching the lowest level in over two years, as wage growth slowed and employment change weakened.
Investors will closely watch the U.S. non-farm payrolls and unemployment rate, scheduled for release on Friday, to obtain further guidance on the labor market. If the labor market conditions prove to be tight, it could lead the Federal Reserve to further raise interest rates at its September monetary policy meeting.
Meanwhile, Chicago Federal Reserve Bank President Ostan Goolsby expressed optimism about inflation returning to 2% while expecting no significant rise in unemployment.
Despite Fitch downgrading the credit rating of the U.S. government due to concerns over long-term fiscal spending, the U.S. dollar index (DXY) displayed a strong recovery on Tuesday.
From a technical analysis perspective, gold prices fell below a fresh three-week low, trading around $1,940.00. The prices are below the 20-day and 50-day exponential moving averages (EMAs), indicating a bearish short-term and medium-term trend. Additionally, gold prices formed a head-and-shoulders chart pattern on shorter time frames, suggesting a potential breakdown if the asset fails to hold the neckline drawn around the recent three-week low.
As of 23:17 Beijing time, the spot gold price was quoted at $1,935 per ounce.