US Economic data and gold price

THE COMEX August 2017 gold price has been consolidating between US$ 1,251 to US$ 1,268.

On Wednesday, the Federal Reserve meeting minutes suggested a postponement of a near term rate hike as the Fed is aiming for a more desirable economic conditions before any rate hikes.

The Federal Reserve also proposed a plan to wind down its US$ 4.5 trillion of balance sheet. This has sent the dollar index lower, making gold a safer asset to hold.

Gold prices then rose to US$ 1,259 after the Fed’s dovish comment on a rate hike.

The conventional theory on interest rate hike and gold prices is that a higher interest makes fixed assets investment more attractive to investors.

Therefore, money tends to flow into higher yield investment and flow out of safe havens such as gold. This could dent gold prices as investors flee out of gold.

On Thursday, the initial jobless claim data rose less than expected and the four-week moving average of claims fell to a 44-year low.

The dollar index has then regained slightly, reacting to the positive labour data.

In the coming week, non-farm payroll ( NFP) data will be re- leased and market participants will be focusing on this influential monthly data.

Non-farm payroll, excluding the farming industry, measures the number of people employed during the previous month.

Should the data record higher than expected numbers, it would indicate that the labour market is healthy and this would boost the dollar.

In contrast, this could also put pressure on gold prices.

Since gold price is sensitive to the strength of the dollar, should the outcome of this data report lower than expected numbers, we would expect gold price to break its current resistance at US$ 1,270.

If the non- farm payroll data turns out to be higher than expected, it would break its current support level at US$ 1,250.