Gold’s bullish potential remains intact, but caution is creeping into the market as investors wait for next week’s U.S. employment data, which could play a pivotal role in shaping the Federal Reserve’s monetary policy.
Analysts note that recent price movements suggest investors are adopting a wait-and-see approach.
The upcoming employment report is expected to introduce some volatility in the shortened trading week, as North American markets close Monday for the Labor Day holiday.
As the weekend approaches, gold prices are holding at a critical support level, consolidating near record highs.
December gold futures last traded at $2,538.30 per ounce, down 0.3% from the previous week. Silver hasn’t fared as well, with December futures dropping 3% to $29.335 per ounce, unable to sustain support above $30.
A complex dynamic is unfolding in the gold market as it grapples with the U.S. dollar’s influence.
Despite gold’s strong push past $2,500, the market isn’t excessively overbought. However, some analysts warn that the recent weakness in the U.S. dollar might be overdone, which could pose risks for precious metals.
Matt Simpson, Market Analyst at CityIndex, sees potential warning signs for gold despite its upward momentum.
“Net-long exposure among large speculators is just 44,000 contracts shy of a record high. This indicates that many investors remain skeptical of the rally, which is bullish overall,” Simpson noted.
However, he cautioned that complacency in shorting the U.S. dollar could be a near-term threat, especially if upcoming ISM or employment figures surprise to the upside, triggering a rebound in the dollar and a pullback in gold.
Han Tan, Chief Market Analyst at Exinity, highlighted that gold is closely following the Federal Reserve’s cues, with traders now being data-dependent.
“Gold prices have been constrained by doubts over whether the Fed will deliver the expected 100 basis points in rate cuts by the end of 2024,” he said.
Although still trading near record highs, gold bulls have shown reluctance to push prices higher for now.
According to the CME FedWatch Tool, markets fully expect the Federal Reserve to cut interest rates by 25 basis points at its September meeting, with a 30.5% chance of a 50-basis point cut.
However, any easing of the unemployment rate back to 4.2% could diminish recession fears and prompt spot gold to dip below the $2,500 mark as markets reconsider the likelihood of a larger rate cut.
Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, emphasized that the Federal Reserve’s strategy hinges on Friday’s employment figures.
He cautioned against premature expectations of a 50-basis point cut, stating, “From a macro perspective, the labor market isn’t that weak. A disappointing print next week would likely be just a bump in the road, leading the Fed to take a more gradual approach.”
Phillip Streible, Chief Market Strategist at Blue Line Futures, remains cautiously optimistic about gold.
He sees any weakness as a buying opportunity but advises investors to build positions gradually. “You want to buy some gold, but you don’t want to be overweight,” he said.
While Friday’s employment data will be the focal point next week, traders should also keep an eye on other key reports.
Important manufacturing and service sector data are due, and the Bank of Canada will hold its monetary policy meeting, where another rate cut is anticipated amid weakening inflation and economic conditions in Canada.
For businesses and investors alike, the week ahead could set the tone for the market’s direction as summer draws to a close.
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