Gold pressure increases as stellar jobs report reinforces March rate hike
James Chen, CMT March 8, 2017 3:39 PM
- Gold further extended its recent breakdown on Wednesday after the ADP private employment release reported a stellar 298,000 US private-sector jobs added in February, the highest increase since April 2014 and far higher than the ~185,000 expected.
- While the ADP report is not necessarily a very accurate predictor of the US Labor Department’s official non-farm payrolls (NFP) data to be released on Friday, it is certainly an indication of significant improvement in the overall employment picture during the Trump Administration’s first full month in office.
- Regardless of whether or not Friday’s NFP mirrors the ADP report in substantially surpassing expectations, the barriers to a Fed rate hike next week with respect to jobs have already been set rather low. The consensus expectations for Friday’s official data is also around 185,000. However, it has been widely surmised from recent hawkish comments by various Fed officials that even a number falling well short of expectations would be sufficient to constitute steady employment growth and warrant a Fed rate hike next week.
- In view of this low hurdle for jobs data along with the highly encouraging ADP report on Wednesday, the likelihood of a March rate hike has risen to a near-inevitability – at least as far as the markets are concerned. As of Wednesday, the Fed Fund futures market is pricing-in a lofty 86% probability that the Fed will hike next week. Furthermore, anticipation of a possibly accelerated pace of rate hikes this year has also increased.
- With such high confidence of rising interest rates going forward, as well as potentially strong corresponding support for the US dollar, pressure on non-yielding, dollar-denominated gold has been understandable. Further exacerbating this pressure on gold has been a recent market environment characterized by strong risk appetite and relative complacency, decreasing demand for the perceived safety of gold.
- This combination of factors has led to a sharp slide for gold prices since late February. This slide led to a clear breakdown below a key uptrend support line in early March that has continued to follow through this week. Pressure on gold is likely to continue building in the short-term if Friday’s jobs data is near or above expectations and if the Fed raises rates next week as expected. This downside pressure could increase even further if the Fed begins to signal a faster pace of rate hikes in 2017 than previously expected.
- Currently, the price of gold has begun to approach a key downside target at the $1200 psychological support level. Any further breakdown amid the official jobs data on Friday and the Fed meeting next week could open the way for an extended fall in gold prices, with key short-term downside targets around the $1185 and $1150 support levels.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.