With the USD still in the midst of a year-long bull run, the gold spot price has struggled to weather the storm. Even as the Greenback hit a 4-month high on the DXY dollar index on Tuesday, however, a lower-than-expected July payrolls report from the ADP is helping gold prices remain steady this morning.
Spot gold hovered around $1,090/oz on Wednesday morning, alternating between slightly above and slightly below this key level in a fairly tight trading range. At the moment, however, futures trading in gold is definitively in the hands of the gold bears; how steady prices remain will depend on buying momentum from gold bulls supporting the price, or even from traders who see vulnerability in the dollar. Around 10:30 am EST, spot gold was (at least momentarily) smacked about $3 per oz lower to $1,086/oz while the dollar reversed direction to break above 98.0 on the DXY.
The USD pulled back slightly, about 0.15%, against its major peers this morning as conflicting messages from voting members of the Federal Reserve Open Market Committee (FOMC) continue to muddy the outlook for U.S. monetary policy. The financial markets are somewhat idle at the moment amid the uncertainty about the timing of the Fed's first increase to its federal funds rate; in all likelihood, this is exactly what the central bank hoped for, as volatility on the markets (especially volatility in response to Fed signals) only complicates the FOMC's decision-making process.
Watching the Economic Data
The flow of news and data about the health of the U.S. economy has been rather mixed all year long, as it seemed that global risks could drive productivity levels into the ground—whether that was the result of falling energy prices, financial crisis in Europe, or some other yet unforeseen factor. Alternately, at times the economic data has pointed toward the U.S. being the one robust performer on the global stage. Much like the back-and-forth sentiment from the Federal Reserve, the economy itself has swung to and fro during an uneven 2015.
Within this paradigm, Wednesday saw some disappointing reports that will perhaps prove supportive of a higher gold price. Not only did the U.S. trade deficit widen during June by 7%, but employment data also came in below expectations: Wednesday's ADP payrolls showed that 185,000 jobs were added during July, falling short of the key 200,000 mark. This puts a great deal of attention on Friday's jobs report from the Department of Labor, which is expected to come in at a 215,000 increase for non-farm payrolls.
Whatever the fundamental drivers, the bear market for gold has created a pattern of "one step forward and two steps back" for gold prices of late. Bullish news has lacked the legs to spark a rally to key resistance near $1,100/oz, while downside pressure remains fairly strong. Since the most recent downturn for spot gold last month, trading volumes have skyrocketed (see yearly chart above), indicating that the bears are undoubtedly in the driver's seat in trading. Yet, the yellow metal may be buoyed going forward by resilience from Australian gold mining companies and continued ambiguity over the timing of interest rate hikes from both the Fed and the Bank of England.