Gold fluctuates between minor losses and gains as traders await labor data

NEW YORK (August 3) Gold (XAU/USD) oscillates around the $2,500 level on Tuesday as a measure of market calm descends, which does little to drive up demand for safe-haven Gold. 

The US Dollar (USD) – to which Gold is negatively correlated – slows in its recovery rally, trading only marginally higher on Tuesday as traders keep their powder dry ahead of the release of potentially market-moving US labor market data later this week. 

Investors appear to be calmly awaiting the final “test results” for the patient – in this case the US economy – before drawing any conclusions about the likely course of action ahead, in terms of the Federal Reserve’s (Fed) decision on how much to cut interest rates – a key driver of Gold.  

Demonstrations in Tel Aviv, demanding a ceasefire in Gaza after seven Israeli hostages were found dead, and the calling of a general strike by Israeli workers have, if anything temporarily, dialed down the threat level in at least one key geopolitical hotspot, adding to the uneasy calm permeating markets. 

Gold traders look ahead to US employment data

Gold price is most likely to see volatility from the release of US labor market data this week. At his pivotal speech in Jackson Hole, Fed Chairman Jerome Powell turned the spotlight away from inflation and onto the fragile-looking labor market, suggesting that downside risks to employment were now greater than upside risks to inflation. 

If labor market data out this week in the form of the ISM Manufacturing Employment Index on Tuesday, JOLTS Job Openings on Wednesday, ADP Employment Change, Jobless Claims and ISM Services Employment Index on Thursday, and Nonfarm Payrolls (NFP) on Friday, come out weaker than expected and back up his concerns, it will probably lead to a tumble in the US Dollar (USD) but a rise in the price of Gold. 

Markets are debating whether the Fed will need to make a 50 basis point (bps) cut to interest rates in September or just a standard 25 bps cut. The latter is fully expected whilst market-based probabilities for the former sit currently at around 30%, according to the CME FedWatch Tool. 

If labor market data is decidedly under par, the chances of a bigger cut will increase, which in turn will give Gold a leg up on the charts. Lower interest rates are positive for the precious metal because they make it comparably more attractive to investors as a non-interest-paying asset. 

FXStreet