US jobs report throws a lifeline for gold; likely to trade in the $1900-$1950 range next week

The US macroeconomic data released in the week were mixed. ISM manufacturing (June) at 46 fell short of the expectation of 47.10 as ISM prices paid further softened from May.

May factory orders came in at 0.30%, thus missing the forecast of an increase of 0.80%. Durable goods orders for May were slightly better than the previous estimates.

FOMC minutes of the June 14 meeting showed that most Committee members see higher rates by the end of the year.

The FOMC doesn’t see a rate cut this year. US services PMI data at 53.90 topped the forecast of 51.20. ISM services price Index was recorded at 54.10 compared to the prior month’s reading of 56.20.
ISM services new orders jumped from 52.90 in May to 55.50 in June.

June’s ADP data showed a blowout figure of 497K jobs, which meant a robust US nonfarm payroll report. However, the US nonfarm payroll report showed that the US nonfarm payrolls increased by 209k in June. Moreover, job gains in the last two months were revised lower by 110k jobs, which is a huge downward revision.

Nonetheless, average hourly earnings MoM at 0.40% beat the forecast of 0.30% as even YoY reading of 4.40% topped the forecast of 4.20%. In addition, average weekly hours for all employees increased from 34.30 in May to 34.30 in June, which amounts to millions of manhours of work. The unemployment and labour force participation rates were steady at 3.60% and 62.60%, respectively.

Two-year US yields jumped to 5.12%, the highest level since 2007 on the US ISM non-manufacturing and ADP data, before sliding lower to close the week with a gain of nearly 1% at 4.95%.

Ten-year yields surged to 4.08%, the highest since March 2023, before closing the week with a gain of around 6% at 4.066%. The US Dollar Index bore the brunt of a somewhat weaker-than-expected job report. Thus the Index closed with a weekly loss of around 0.70% at 102.27.

Spot gold closed the week ending July 7 with a gain of 0.30% at $1925.30.

According to the World Gold Council, eight countries added gold to their reserves in May, which amounted to a net 50 tonnes of addition; however, with Turkey selling 63 tonnes of gold to satisfy its domestic demand, total bank holdings fell by 27 tonnes.

China added to its gold reserves for an eighth consecutive month as People’s Bank of China holdings of bullion rose by 23 tons, which took its total stockpiles to t 2,330 tons.

The July NFP report is still good enough to ensure a 25 bps rate hike in July; however, investors doubt the second rate hike, which may support the yellow metal in the near term.

Next week, the US data calendar is relatively lighter with CPI inflation data (June) being the major focus. Core CPI is expected to moderate from 5.30% in May to 5% in June, while the headline inflation is expected to fall sharply lower from 4% in May to 3.10% in June.

In all possibilities, the US yields may correct lower on the data, thus leading to further weakness in the US Dollar Index, which may boost gold prices. Traders will watch UK’s job report (June) and monthly GDP (May), and Germany’s CPI inflation data closely, too.

Gold is expected to remain in the $1900-$1950 range with a slight positive bias next week.

(The author is Associate VP, Fundamental currencies and Commodities, Sharekhan by BNP Paribas)

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