U.S. non-farm payrolls sharply favor gold plummeting

The U.S. non-farm payrolls data was much better than expected, strengthening the Fed's determination to continue raising interest rates by 75 basis points in July. In addition, the intensifying fears of a global economic recession have also boosted the safe-haven feature of the dollar. The dollar index rose more than 2% this week, hitting a new high of 107.808 since the end of October 2002.

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This week, spot gold prices fell nearly 4%, hitting a record low of $1,732.17 an ounce during the session since early September 2021. Not only did gold fall for a fourth straight week, it was also on track for its biggest weekly drop since the week of June 18, 2021.

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According to data from the U.S. Commodity Futures Trading Commission (CFTC), as of the week of July 5, the speculative net long position of hedge funds COMEX gold futures decreased by 19,831 contracts to 26,806 contracts, the lowest in more than three years. For the week, the net long dollar position rose to $15.59 billion from $13.65 billion the previous week.

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Gold remains in a tug-of-war between aggressive central bank tightening and rising inflationary pressures, stock market volatility and geopolitical uncertainty, the World Gold Council WGC said in its latest report. The WGC said 28.5 tonnes of gold flowed out of ETFs in June and 53 tonnes in May. But net inflows so far this year remain positive at 234 tonnes. As of the end of June, the total open interest was 3,792 tons.

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Another strong increase in U.S. jobs data further underscores the contrast between the resilience of the labor market and the gloomy economic outlook. The drums of a recession are getting louder, and decades of high inflation are eating into American incomes and weighing on consumer spending. While a number of companies did announce layoffs in June, the layoffs so far have been concentrated in interest-rate-sensitive industries such as technology and housing, as the Fed sharply raised borrowing costs to tame inflation. At the same time, many other businesses are still complaining about labor shortages and unable to fill the millions of vacant jobs.

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Inflation data due next week is expected to show that U.S. consumer prices accelerated further to 8.7% in June from a year earlier. It would also be seen as giving Fed policymakers ammunition to further raise borrowing costs. Fed officials have expressed optimism that the economy can stave off a recession, despite their tightening policies aimed at curbing runaway inflation.

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Bloomberg Economics analyst Jersey commented on June non-farm payrolls: The data did not disappoint, which gave the Fed the green light to raise interest rates by 75 basis points at the July meeting, if next week's CPI report is close to the market consensus, this will be consolidated.

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The U.S. economy has lost momentum but is unlikely to slip into a recession, which favors a more restrictive Fed policy, coupled with high inflation still rising, giving the Fed a reason to keep raising rates by 75 basis points. As the Fed locks in the trajectory of future rate hikes, it is looking for clear signs that the pace of inflation is slowing. The labor market remains very tight, and officials appear more willing to make labor market sacrifices to quell inflationary pressures.

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Deutsche Bank's George Saravelos wrote that if the Fed goes ahead with rate hikes despite a global recession, EUR/USD could fall to 0.95, "We don't expect the exchange rate to go that far, but over the past two weeks global and euro-specific The apparent deterioration in the growth outlook for the U.S. dollar at least justifies a rise in the dollar.”

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Short-term momentum fell sharply after weak finishing, entangled in a narrow range around 1741, and there is no sign of stopping the short-term decline. The top suppresses around 1788, the low-level support focuses on 1703, the MACD indicator is in the short area, and the RSI indicator is in the short position. Regional low-level narrow-range finishing and translation, as shown in the figure:

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[Disclaimer] This article only represents the author's own views and does not constitute any investment advice.