Gold trading: Job vacancies data weighed on gold prices, supported by Powell's dovish speech

In early Asian trading on Wednesday (July 3), spot gold fluctuated in a narrow range and is currently trading near $2,331.15 per ounce. Gold prices fluctuated slightly down 0.11% on Tuesday to close at $2,329.15 an ounce, with strong U.S. job openings data weighing on gold prices, but Fed Chairman Jerome Powell's dovish speech and the fall in the dollar and Treasury yields provided support for gold prices.

Phillip Streible, chief market strategist at Blue Line Futures, said: "The market remains highly sensitive to any discussion about interest rates or Fed policy. So I think the market is still in a wait-and-see position. ”

Data on Tuesday showed that U.S. job openings rose to 8.14 million in May, higher than market expectations of 791 and the previous reading of 805.9.

Powell said on Tuesday that the U.S. is back on a "downward trajectory for inflation," but policymakers need more data to verify whether the recent decline in inflation accurately reflects the state of the economy before cutting interest rates.

The focus now turns to Friday's non-farm payrolls data, which will be crucial in assessing whether the US labor market remains resilient against the backdrop of interest rates at multi-decade highs.

In addition, this trading day will release the US ADP employment data for June, the US ISM non-manufacturing PMI for June and the US factory orders for May month, investors need to pay attention, in addition, they need to pay attention to the Fed officials' speeches and geopolitical news.

However, as July 4 is the Independence Day holiday in the United States, the market will be closed early on this trading day, which may slightly limit the trading space, and investors need to pay attention.

Job openings in the United States increased in May, and the trend in the job market is still slowing

Job openings in the U.S. rose in May after falling sharply in the previous two months, but the trend remains consistent with easing labor market conditions, which could pave the way for the Fed to cut interest rates this year.

The Job Openings and Labor Turnover Survey (JOLTS) released by the U.S. Bureau of Labor Statistics showed that there were 1.22 job openings for every 1 unemployed person in May, unchanged from April and the lowest since 2021. The corresponding ratio in April was previously estimated to be 1.24. At present, the ratio is not much different from the average of 1.19 in 2019.

"The data suggests that labor supply and demand are normalizing," said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. "From a policy perspective, the challenge for the Fed going forward will be to maintain interest rates at a level that will help tame inflation while preventing unnecessary damage to the labor market."

The U.S. Labor Department's Bureau of Labor Statistics said job openings, which measure labor demand, increased by 221,000 to 8.14 million on the last day of May from the end of April. The figure at the end of April was revised downwards to 7.919 million job openings instead of the 8.059 million previously reported. Economists surveyed had forecast 7.91 million job openings in May.

Job vacancies reached a record 12.182 million in March 2022. Job openings have decreased by 1.2 million so far this year.

A gradually rebalanced labor market and the receding of inflation have brought the Fed closer to starting its easing cycle, with financial markets still pricing in the first rate cut in September. Since July last year, the Fed has maintained the target range for its benchmark overnight interest rate at the current 5.25%-5.50%. Since 2022, the Fed has raised its policy rate by 525 basis points to curb inflation.

The job vacancy rate rose to 4.9% from 4.8% in April. Boosted by professional and business services and construction, hiring increased by 141,000 to 5.756 million. However, hiring in retail, accommodation and foodservice services, and manufacturing declined. Over the past year, the number of hires has decreased by 415,000. The employment rate rose to 3.6% from 3.5% in April.

The number of layoffs increased by 112,000 to 1,654,000 due to fewer jobs in professional and business services, leisure and hospitality, and other services. But layoffs in the manufacturing sector have decreased. The layoff rate remained at 1.0% for the third consecutive month.

Since the labor market is not as tight as in previous years, fewer workers are changing jobs.

The number of resignations was little changed at 3.459 million. The resignation rate, a measure of confidence in the labor market, remained at 2.2% for the fourth month in a row. A steady quit rate indicates moderate wage pressures ahead, which bodes well for the overall inflation outlook.

Powell said the U.S. is on a "downward trajectory for inflation," but more data needs to be seen before rates are cut

Federal Reserve Chair Jerome Powell said on Tuesday that the U.S. is back on a "downward trajectory for inflation," but policymakers need more data before cutting interest rates to verify whether the recent decline in inflation accurately reflects the state of the economy.

May data showed that the Fed's preferred measure of inflation was flat month-on-month, with year-on-year gains falling back to 2.6%, still above the Fed's 2% target, but on a downward trajectory after rebounding in the first months of the year.

"We just want to understand that the data we're seeing is a reflection of the reality of core inflation," Powell said to the ECB

At a central bank monetary policy meeting hosted by Sintra, Portugal, it said, "I think the last data ...... And the last data suggests to some extent that we are back on track for declining inflation as we begin to ...... Before easing policy, we want to be more confident that inflation is continuing to fall towards 2%. ”

Powell would not comment on when the US might start cutting interest rates, but acknowledged that the Fed has entered a sensitive phase of policy deliberation and that the risks to inflation and employment targets are "already closer to equilibrium", meaning that neither can be fully prioritized when it comes to policymaking.

In particular, some closely watched indicators of the job market suggest that the U.S. economy may be approaching a tipping point at which further progress on inflation will prompt the Fed to make a trade-off between falling inflation and rising unemployment, the latter scenario that the Fed has avoided so far.

"You can't know exactly where the tipping point is," he said, "but we know that we have two sides of the risk." ”

The U.S. unemployment rate has been at or below 4% for more than two years, and many Fed policymakers have used this as a reason to be patient in deciding when to cut the benchmark policy rate. "Given the strong economic performance we're seeing, we can approach this with caution," Powell said, noting that policymakers don't want to let policy tighten too much for too long, leading to a "loss of expansion."

Chicago Fed President Goolsbee said he felt "warning signs that the real economy is weakening" and that while the economic situation remains strong, the Fed needs to be careful not to keep monetary policy at such a tight level for too long.

While the unemployment rate is currently low by historical standards, it has risen steadily from 3.4% in April 2023 to 4% in May. The U.S. Department of Labor will release June employment data on Friday. The challenge for the Fed is to decide how and when to signal that it is about to adjust policy, especially given that further progress in the pullback in inflation is expected to be slow. Powell said Tuesday that inflation may not return to the Fed's 2% target until the end of next year or 2026

Powell said he expects headline inflation to remain in the range of 2%-2.5% a year from now, which he would see as a "good outcome."

Goolsbee and some other policymakers argue that at some point, falling inflation should trigger a drop in interest rates to keep inflation-adjusted "real" borrowing costs intact.

U.S. short-term interest rate futures were little changed on Tuesday as futures prices continued to suggest that the Federal Reserve would cut rates for the first time in September and a second in December.

Whether the Fed ultimately cuts rates in September, or later, will depend on future jobs and inflation reports, including Friday's June jobs report and the June Consumer Price Index (CPI) on July 11.

The Fed will hold its next policy meeting on July 30-31.

While the timing of the first rate cut may have little to do with the larger economic outcomes the Fed seeks, policymakers are very sensitive to the signals they send through rate cuts.

In particular, they want to ensure that lowering borrowing costs for the first time is the beginning of the next round of broad monetary easing cycle, bringing interest rates steadily down to levels that the Fed believes neither encourages nor hinders business and household investment and consumption.

For many policymakers, this has been an argument in favor of being patient and waiting longer before making the first rate cut.

The U.S. dollar edged lower on Tuesday as dovish comments from Powell overshadowed the impact of upbeat job openings data

The U.S. dollar fell 0.1% to close at 105.69 in thin volatile trading on Tuesday, and must have risen 0.23% to 106.05 earlier in the session.

"Powell didn't really say anything new, but I think he's slightly dovish," said Erik Bregar, head of FX and precious metals risk management at Silver Gold Bull, whose remarks pushed the dollar down slightly. "But I don't think the JOLTS report is as strong as it seems. The April data was revised downward, so the market is trying to get out of this report. That's why the dollar isn't as high as it was when the report was first released. ”

Following the JOLTS report and Powell's speech, the probability of a September rate cut priced in by the U.S. interest rate futures market increased to 69% from about 63% on Monday, according to calculations by the London Stock Exchange Group (LSEG). The market is also pricing in one or two rate cuts in 2024.

Technical Analysis

At the daily level, gold prices have recorded similar to the "doji" K-line for three consecutive trading days, and it is near the middle of the Bollinger bands, suggesting that the market has a strong wait-and-see mood and a lack of clear direction. Focus on last Friday's high near 2339.64 resistance, if it can break above this level, gold prices are limited to further attack the upper Bollinger Bands near 2365.24 resistance, in the short term, there is also some resistance near the 2350 mark.

Note the support near Monday's low at 2318.40, the 2310 mark and the 2300 mark below, respectively, with the lower Bollinger band support currently around 2292.48.

The Bollinger Bands track is close to horizontal, and the midline trend is to pay attention to the breakout of the Bollinger Bands track in the 2292.48-2365.24 area.