ALB Limited 05.05.2023

Employment Data And Gold Expectations In The US

This week was marked by the major central banks' interest rate decisions and the US banking sector's confidence crisis. The Fed cut interest rates by 25 basis points and signaled the end of the rate hike cycle by removing the statement suggesting that further rate hikes were appropriate. However, Powell's announcement at the press conference that there would be no further interest rate cuts until the end of the year put pressure on precious metals. Spot gold tested $2,060 levels and headed towards an all-time high as investors turned to short-term US bonds. Although gold pulled back from its highest level since August 2022 at $2,063 it still gave back some of its daily gains. Despite the announcement, our previous expectations for gold remained unchanged. Precious metals draw on different dynamics as the Fed's rate hike cycle comes to an end. Central banks continue to buy gold, and recession fears remain on the table. While inflows into gold ETFs have slowed, we still see a trend of increasing inflows. Geopolitical tensions in the Asia-Pacific region or Eastern Europe have yet to be resolved.

We Will Follow The Employment Data On The US Side

On the last trading day of the week, all eyes are on the employment data to be released in the US. The US labor market continues to demonstrate a strong outlook, as confirmed by the ADP private sector employment report released on Wednesday, which indicated that the US economy created 296,000 new jobs in April - nearly double the market expectations. While many expected weakness in the labor market, it continues to remain robust in the US, with non-farm payrolls continuing to trend above historical averages. Thus, it would not be surprising if non-farm payroll data for April exceeds expectations once again, initially supporting the strengthening of the US dollar and possibly leading to potential pullbacks in the price of gold, which can be viewed as buying opportunities. Furthermore, the Federal Reserve has highlighted a decline in average hourly earnings by 4.2% on an annual basis, signaling a cooling trend in wages that could potentially provide some relief for the Fed in terms of interest rate policy as they continue to monitor the dynamics of the labor market.

From a technical standpoint, we are tracking resistance levels for gold at $2,070 and $2,100 while support levels can be found at $2,040 and $2,070 in the event of potential pullbacks.

Tags: Gold, Employment, Analysis

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