The bull market for gold is entering its seventh year. For the past seven months the market has traded roughly sideways. Collapsing energy prices and a rising dollar have held back earnings and revenue growth.
In the past, the demand for gold from China had been a motivating factor behind the rising prices for gold. But now, questions regarding the pace of global economic growth have moved to the forefront recently by price declines in the Chinese stock market, oil, commodities and high-yield debt in the past three months.
Such a slow pace of economic growth continues to create a deteriorating investment scene. Commodities and oil are key drivers of global economic growth, and falling prices do not usually portend rising demand.
Gold has been trading in successively smaller weekly ranges for the past 2 weeks. This week we closed lower at 1095 with a very small range, and it appears that the bottom of the bearish trend.
Spot gold, which hit a session low of $1,082.76 an ounce immediately after the U.S. jobs report, managed to rebound 0.5 percent to $1,095.26 . It had fallen to $1,077 on July 24; it’s weakest since February 2010.
Though we saw some buying momentum in gold as the week ended, some market players state that since prices aren’t able to break the $1100 mark, gold does not bode well for a sustained rally.
Surprisingly, $1,100 appears to be the barrier that we just can’t seem to break.Although there are expectations that the market might trade in a tight range next week, gold remains an unwanted asset as the expectations remain that the Federal Reserve will raise interest rates in September.
After rising on Friday, following the U.S. Department of Labor’s employment report for July, the U.S. dollar weakened as afternoon trading wore on. It was a neutral report- not too close and not too far from expectations. Therefore, markets are finding it difficult to analyze and find a meaning in it.
Economists have noted that July’s nonfarm payrolls report helped to rejuvenate those expectations. Although job gains of 215,000 were below expectations, it stills a “solid” report.
Consensus forecasts ahead of the report were expecting that the U.S. economy created 223,000 jobs. The unemployment rate remained unchanged at 5.3% last month, in line with economist expectations.
The consensus was for 223,000 jobs and July came in at 215,000. However, upward revisions to the previous months’ employment data plus a gain in average hourly earnings and hours worked were both viewed positively by market participants, and as a stronger signal the Fed could raise rates in September.
The U.S. labor market lost momentum in July, coming in under expectations for the second consecutive month, according to the latest employment data from the Labor Department; however, the numbers still showed jobs gains of more than 200,000.
Friday, the Bureau of Labor Statistics said 215,000 jobs were created in July, down from June’s revised number of 232,000; June’s initial report pegged the growth at 223,000 jobs. May’s employment data was also revised higher to 260,000 from the previous report of 254,000.
Although the data was slightly weaker than expected, gold prices sold off in initial reaction to the news, dropping almost $10 and falling to a session low of $1,081.40 an ounce.
Other highlights of the report were-
- The participation rate was also unchanged at 62.6% in July.
- Wage growth continues to expand at a steady pace, increasing 0.2% in July, compared with a 0.2% rise in June.
- The report noted that average hourly earnings rose five cents last month to $24.99. On an annual basis wages have increased by 2.1%.
- Employees also saw an increase in the work week; the report said that the average workweek rose by 0.1 hour to 34.6 hours.
Although it appears that some of the immediate selling pressure has been alleviated, there is still strong negative sentiment in the marketplace. Retail investors continue to expect to see lower prices in the near-term and market professionals have once again turned bearish on gold.
The first data point that could have potential to move the gold price next week comes Thursday with the release of U.S. advance retail sales for July. The market ends the week with some inflation data with the release of the U.S. Producer Price Index for July.
Despite the negative sentiment, there is still market professional who see some hope for the yellow metal as technical momentum indicators continue to highlight an oversold marketplace.
However, gold is still fundamentally in the doldrums from the bullish point of view. Long term, gold will be pressured downward.
Markets don’t expect to see another sharp selloff until Aug. 19, when the Federal Reserve will release the minutes of its July meeting. Markets will then expect a clearer picture of an interest rate hike in September.
Till then gold is expected to trade sideways until some solid crucial news is reported.
Markets could be stuck in a range next week in light volume as markets will be deeper into the summer holiday season.