Gold Under Pressure Ahead of US Nonfarm Payrolls

Gold has posted slight losses on Friday, as the spot price stands at $1207.10 per ounce late in the European session. On Thursday, the ECB left interest rates unchanged but said that it would begin purchasing asset-based securities (ABS) in the fourth quarter of 2014. Over in the US, today’s highlight is the Nonfarm Payrolls, which should be considered a market-mover. As well, the US will release the unemployment rate, Trade Balance and the ISM Non-Manufacturing PMI.

Recent sharp gains by the US dollar are weighing on gold prices, as a stronger dollar diminishes the metal’s appeal as an alternative asset to the dollar. The dollar enjoyed a spectacular September, as gold prices have tumbled over 6% during this period. With the Fed scheduled to wind up QE and attention shifting to the timing of an interest rate hike, gold could continue to move lower.

At its October policy meeting, the ECB made no changes to interest rates. The central bank did announce it would start buying covered bonds in October and begin ABS purchases in Q4. However, there were no specifics and no mention of any purchase of government bonds. This left the markets underwhelmed by the ECB announcement and the euro remains at low levels. Given that the ECB shows no signs of introducing a full-blown QE, it’s questionable whether ABS will help boost the anemic Eurozone economy.

In the US, employment numbers are showing improvement. US Unemployment Claims dropped to 287 thousand, beating the estimate of 299 thousand. ADP Nonfarm Payrolls surprised with a strong gain, climbing to 213 thousand, compared to 204 thousand in the previous release. This beat the estimate of 207 thousand. The ADP release precedes the official NFP release, which will be published on Friday. The markets are anticipating a sharp gain, with an estimate of 216 thousand. If the indicator does follow suit with a solid reading, the US dollar could post further gains against its major rivals.

On the manufacturing and housing fronts, this week’s US numbers were disappointing. ISM Manufacturing PMI fell to 56.6 points, down from 59.0 points a month earlier. US Pending Home Sales posted a decline of 1.0%, compared to last month’s gain of 3.3%. On Friday, we’ll get a look at ISM Non-Manufacturing PMI, with the markets braced for a softer reading for September.

XAU/USD for Friday, October 3, 2014

XAU/USD October 3 at 12:00 GMT

XAU/USD 1207.10 H: 1213.57 L: 1205.27

XAU/USD Technical

• 1186 is the next support level. 1156 is next.
• On the upside, 1215 is under strong pressure. 1240 is stronger.
• Current range: 1186 to 1215.

Further levels in both directions:

• Below: 1186, 1156, 1136 and 1101
• Above: 1215, 1240, 1252, 1275 and 1300

OANDA’s Open Positions Ratio

XAU/USD ratio continues to have a strong majority of long positions. This is indicative of trader sentiment which is strongly in favor of gold moving higher against the dollar.

XAU/USD Fundamentals

• 12:30 US Nonfarm Employment Change. Estimate 216K.
• 12:30 US Trade Balance. Estimate -41.0B.
• 12:30 US Unemployment Rate. Estimate 6.1%.
• 12:30 US Average Hourly Earnings. Estimate 0.2%.
• 13:45 US Final Services PMI. Estimate 58.5 points.
• 14:00 US ISM Non-Manufacturing PMI. Estimate 58.5 points.

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.