July Non-Farm Payrolls Surprise Decline Lifts Gold from its Slump! Will Gold Rebound Depend on US July Inflation Rate Announcement?

Gold is expected to experience short-term or narrow-range fluctuations, with resistance at 1984 and support at 1913. The unexpected weak July non-farm payrolls data released last week boosted gold's decline. The direction of gold will be guided by the US July inflation rate data released this week. Based on CFTC positioning data and technical analysis, the medium- to long-term downtrend in gold remains unchanged, while the short-term outlook suggests potential narrow-range oscillations.

Last week (7.31-8.06), precious metals experienced a general decline, with gold falling by 1.5%. Silver, on the other hand, dropped by 5.0% during the week. The strong performance of the US July ADP employment data briefly boosted gold prices by $15, but the July ISM manufacturing and services PMI results fell below expectations. As a result, gold fluctuated downward and found support around the disappointing non-farm payroll data for July, ultimately closing near $1941.

Source: MacroMicro - Percentage Change of Major Precious Metal futures in the 1st Week of August

On August 4th, the US Department of Labor announced that non-farm payrolls increased by 187,000 in July, below market expectations of 200,000. The majority of job gains were seen in sectors such as finance, healthcare, social assistance, and wholesale trade. However, the US unemployment rate improved slightly from the previous month, with July's figure at 5.8 million and an unemployment rate of 3.5%, a 0.1% decrease compared to the previous month. Following the data release, the US dollar faced significant pressure and depreciated, while gold received a boost, experiencing an intraday rebound of nearly $20 from its low point.

Market analysts believe that the weaker-than-expected non-farm payroll data reflects the continuous impact of the Federal Reserve's 11 consecutive interest rate hikes since March last year on the US labor market.

Mitrade Analyst

The better-than-expected preliminary Q2 GDP for the US, coupled with strong household consumption demand, eased concerns about an economic recession and temporarily dampened the demand for safe-haven assets like gold, causing gold prices to decline. However, the combination of this non-farm payroll data and last week's disappointing July ISM manufacturing and services PMI reports intensified market expectations of an economic downturn. This, in turn, lowered the likelihood of a September interest rate hike by the Fed. According to CME FedWatch data, there is now an 86.5% probability that the benchmark interest rate will remain unchanged at 5.25%-5.50% in September. This expectation could weigh on the US dollar and provide support for a rebound in gold prices.

Source:CME

However, whether gold can successfully rebound in the short term still depends on the release of the US July inflation rate on Thursday (August 10th). The market expects the US inflation rate to rebound slightly to 3.3%. If it meets expectations, it may boost market expectations of a rate hike in September and strengthen the US dollar. If inflation cools down more than expected, it may weigh down the US dollar and boost gold.

On August 1st, the World Gold Council released data showing that global gold demand (excluding OTC transactions) was 921 tons in Q2 2023, a 2% decrease compared to the previous year. However, when accounting for OTC transactions and inventory flows, total global gold demand in Q2 reached a high of 1255 tons, reflecting a 7% year-on-year increase. Additionally, global central bank purchases of gold decreased to 103 tons in Q2 compared to the same period last year, primarily due to the Turkish central bank selling a significant amount of gold amid domestic political and economic conditions. Nevertheless, global central bank gold purchases in the first half of 2023 still reached a new high of 387 tons.

Mitrade Analyst

From a supply-demand perspective, the continuous growth in global central bank and market demand for gold indicates a stable performance in the gold market, supporting a bullish long-term outlook for gold.

Recently, speculative positions in gold have seen reductions from both long and short traders. According to the latest CFTC position data from July 26th to August 1st, speculative long positions in gold decreased slightly by 8,715 to 164,924 compared to the previous period. During the same period, within open gold futures contracts, speculative long positions also decreased by a small margin of 9,244 to 238,985. Additionally, short positions decreased by 529 compared to the previous period. These findings indicate that short-term market investors are adopting a cautious stance towards gold.

Mitrade Analyst

In conclusion, the short-term speculative market has witnessed a reduction in both long and short positions, suggesting a cautious outlook for the future of gold. Gold is likely to experience minor fluctuations this week as market participants await guidance from news events.

From a technical indicator perspective, the 60-day MAis trending downwards. The 14-day RSI value of 47 is below 60 but showing an upward trend. At the same time, the daily MACD shows a death cross as the short-term period line crosses below the long-term period line. However, the gap between the lines is gradually narrowing, and the histogram is positioned below the zero line, becoming smaller in size. The DIFF and MACD values are negative, while the DEA value is positive, indicating a short-term or narrow-range consolidation in gold, awaiting directional signals.

Resistance: 1984

Support: 1913

Source: Investing.com- August the 7th Gold Daily Chart

Mitrade Analyst

Based on the analysis of various indicators, the medium to long-term downtrend in gold remains unchanged. Gold may experience slight fluctuations this week, waiting for guidance from the news. Additionally, investors need to pay attention to news and economic data that may provide guidance for the future trend of gold, such as the US July Core Inflation Rate and July Consumer Price Index Annual Rate.