Gold (XAU/USD) is hovering around the $4,060 handle this Tuesday, consolidating in a narrow band on Tuesday amidst mixed signals out of the Middle East and expectations for a key US labor data this week.
Here is a glance at the market:
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The Iranian Predicament
Two conflicting narratives are currently dominating the safe-haven. Firstly, U.S.-Iran geopolitical tension remains, underpinning an underlying bid in gold but the relationship has become complicated as Tehran shot back, stating there is ‘not a single ounce’ of talk with America, after President Trump referenced pending negotiation as the reason for not retaliating last weekend. Mr.
Trump had declared Iran willing to restart talks before launching limited strikes this weekend.
Second conflicting news story, Iranian security forces carried outat least three drone attacks on a U.S. Military site in Kuwait, while Iran’s supreme leader, Mohsen Rezaee, lashed back against Mr. Trump claims about future Strait of Hormuz reopening by threatening Iran with the targeting of American warships should they intend to utilize the crucial shipping lane. The situation has so far proven beneficial for gold demand but capped on account of the persistent upward influence of Federal Reserve speculation.
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The FOMC Will Decide Gold's Fates
At its 29 July, Federal Open Market Committee meeting, for the second occasion in months the Fed split nine-three in favor of cutting the fed funds rate, though each of the three dissenting committee members favored a larger half percentage point increase on their latest July meeting. This week, sentiment on rate cuts has reversed as the Chicago Mercantile Exchange CME FedWatchtool puts probability at 65 percent chance rate-cuts during the September policy meeting, with odds of an end-of-year reduction of85% percent. This sentiment increased after this recent manufacturing data released on Monday of last week, wherein ISMmanufacturing new orders rose toan expansion in most ever-so-far since September 2006, and which gave rise to Treasury yields as well as the cost of holding nonyieldgold.
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Oil to Transmission Mechanism For The Fed Speculation
The transmission mechanism that directly transmits the flow of prices that the prices have to oil will then have a direct bearing on the Fed interest rates. While the trend is generally to work in opposite directions-higheroil prices imply upward inflation expectations leading to stronger prospects of rate hike at the Fed’s meeting, while lower oil prices signify opposite--oil slumped by more than five percent during trading on last Monday afternoon after President Trump chose not to sanction further attacks against Iran after an expectation of a diplomacy effort. The drop sawBrent crudeslightly above $83 per Barreland WTI dipping at $79 per Barrell.
This decline eased near term inflation fears and gave slight upward breathing room to gold prices.
However, Mr Iran and Washington may engage in diplomacy, or tensions are ratcheted up may shift prices and then the Fed speculation to the contrary.
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Watch NFP This Friday For Gold's Direction
The week’s docket has been largely overshadowed as attentions now pivot toward the US non-farm Payrolls report to be released on Friday morning and expected to be an upswing in NonFarm payroll employment, from 57,000 reported last month to 88,000 predicted, with strong report will put pressure on Treasury yields as the US dollar gains on the stronger report while weak report could be supportive of bullion. Below is a breakdown for this week’s key US Data: Weekday Data Event Day, Tuesday JOLTS Openings Tuesday , Weds ADP Employment Report &ISM services P.M I, Thursday Jobless Claims & Unemployment Rate and Friday NFP Report .
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Technical levels for gold
Gold currently trades in a well-defined range. Gold chart: Res $4,060 resistance $4,111 $4,147 $4,187 Support $3,968 $3,996 $4,022 The momentum for the metal still neutral in tone, as depicted by the oscillators, particularly The 14-day RSI which rests at around 46.48 on Tuesday morning, implying languishing buying interest. Breakthrough above the resistance at $4,060/111 would signal extension toward to $4,147 and then to $4,187.
Alternatively, a break below $4,022 support level will probably confirm deeper correction towards $3,996 and then $3,968.
The price continues well above the 200 day SMA price, at$4,490 suggesting that the bearish structure is still intact .
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What This Means To You
The fate of gold is tied to Fed speculation; the conjecture however cannot change with the actual data release from the U.S. Economic sphere.
If you have goldLong on gold, then look to maintain the$4000 round-figure support. Failure to hold this support could initiate an extension toward $4147 and possibly higher. If you are short-sell of gold,then the NFP should determine levels; a strong report would set targets of $3968 initially.
In line with Citigroupexpecting gold to largely go flat this month and next quarter before climbing to an average of 4,500 dollars by late fourth quarter this year and eventually 5,000 in the first half of next year, Commerzbank analysts concur thatgold price will trade in a consolidated pattern in the region of 4000-4050 in the coming months. The psychological support at the 4000 level will surely provide a cushion but the speculation about direction of US Fed rates will limit the ability for gold to bounce higher in due course. Watch for the price levels and keep a watch on calendar, the NFP will be key to the price direction and trend.
