The US ADP report takes center stage as gold prices remain stable

6 December 2023, Wednesday
The US ADP report takes center stage as gold prices remain stable

Gold Prices Consolidate as US Dollar Gains Momentum


Gold Holds Strong Above $2,000


Gold prices have been consolidating around $2,020 after reaching all-time highs at $2,150 earlier this week. Despite failing to break above $2,040, gold has managed to hold steady above the psychological level of $2,000.


US Treasury Yields Provide Support for US Dollar


US Treasury yields have shown a slight increase on Wednesday, bouncing back from a 2% loss on Tuesday. This has provided moderate support for the US Dollar and has weighed on the price of gold. The release of the US ADP employment report is expected to further impact the market.


Mixed Data from Tuesday


Data from Tuesday offered a mixed picture of the US economy. While the US ISM Services PMI beat expectations, indicating positive growth, the US JOLTS job openings survey revealed that the labor market is starting to feel the effects of higher interest rates.


ADP Employment Report and Fed’s Monetary Policy Plans


The ADP employment report, set to be released later today, is expected to show a moderate increase in job creation. With the Federal Reserve on its blackout period ahead of next week’s meeting, the ADP report and Friday’s Nonfarm Payrolls data will be closely watched for clues about the Fed’s monetary policy plans.


Market Confidence in Fed Rate Cuts


Gold prices remain steady at high levels as the market becomes increasingly confident that the Federal Reserve will start cutting rates in March. The CME Group FedWatch Tool currently prices a 53% chance of a 25 basis points rate cut in March.


US Labor Market Losing Momentum


The US JOLTS job openings survey indicates that the labor market is losing momentum, suggesting that the restrictive monetary policy is starting to impact demand for workers. However, the US ISM Services PMI showed a larger-than-expected improvement, indicating that the US economy is not experiencing a sharp downturn.


Moody’s Cut to China’s Credit Outlook


News that Moody’s has cut China’s credit outlook to negative due to increasing debt risks is weighing on risk appetite in the market.


Technical Analysis of Gold Prices


From a technical perspective, gold prices are in a consolidation phase. Attempts to move lower are being contained above the key support area at $2,000, while attempts to move higher are being capped below the $2,040 level. The broader bullish trend has lost momentum after breaking the 50% Fibonacci retracement level, and the inverse correlation with a stronger US Dollar suggests that further decline should not be ignored.


Downside Targets


If gold prices confirm a break below the $2,000 support area, it would negate the broader upside trend and increase bearish pressure towards $1,950 and $1,932.


Upside Targets


On the upside, a bullish reaction above $2,040 would clear the path towards $2,067, and potentially reach the record-high level of $2,150.