Gold, Weekly analysis

What fundamentally moves the Gold market in the week ahead?

By: Ahura Chalki

Market analyst – IFC Markets

A summary from last week shows us that weaker than expected job reports caused a sharp drop in the U.S. Treasury yields, and it was the reason why the U.S. Dollar decrease right after that. And weaker USD send its crosses higher, as well as Gold. 

On the other hand, a weaker labor market means higher risk in the market and more demand for Gold. 

The question is why weaker jobs help the Gold and Stocks to rise. Since the labor market is still behind the estimates and is the primary priority of FED, FED will hold the interest rates at the current level and continue the bond purchasing, as FOMC members used to say that in the past weeks. 

However, we can not count on that much for the week ahead because FOMC members can change their minds as soon as fears about higher inflation can rise rapidly. This Wednesday, we will have U.S. inflation data, and the next day, Initial Jobless, and both expected to be watched closely. If the inflation rises faster than the market expected and initial jobless claims numbers violate previous employment data, they probably think twice. 

As long as fears about treasury yields, it is already bouncing back slowly from Friday fall, signaling that it had overreaction on NFP data. Market participants need time to calm down and have a more logical reaction.

Numbers are always numbers, but what makes them essential is their analysis and reasons for their formation. As most polls and researchers used to vote for increasing the employment numbers, were they mistaken, or any other reasons are there? We can bring the main reason is the lack of raw materials and broken wheels of production and economy. Even though you have enough workforce, you do not have the raw material to produce or a healthy distribution network; production means nothing. 

So in the week ahead, and even in the month ahead, it is likely to see the reconstruction of the economic chain and then growth in the labor market. So the instant reactions must be avoided in the first of the week and see more rational numbers in the second half of the week. 

So in the week ahead, as a Gold trader, we must monitor some data, and critical events, including the U.S. Treasury, yields movement, and its reactions to other market news. On the other hand, most FOMC members will have a speech this week, and it is good to monitor them closely to find out any comments about NFP numbers and FED possible reactions. 

Andrew Richman, the senior fixed-income strategist at Sterling Capital Management, believes that “Despite a huge miss, which it was, it’s still employment going in the right direction.”

As an economic calendar, we must follow some key reports such as Tuesday’s JOLTS Job Openings, a favorite of the Fed, the Consumer Price Index that will be released on Wednesday and Thursday, data on Retail Sales. Besides Jobless claims. Any jump in inflation number will make traders and the market forget about the U.S. Non-Farm Payrolls report. 

Any solid economic data from the United States will likely support U.S. Treasury yields, and this could make the U.S. Dollar more attractive for investors and weaken gold prices.

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