Gold traders focus on ECB rate cut, NFP

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Gold traders and investors expected the European Central Bank to cut interest rates by 25 basis points for the first time since 2019 in its meeting on Thursday, making it the first reversal in the bank’s hawkish monetary policy in five years.

The Euro and the equities markets in Europe had already priced a major chunk of this shift in their respective markets.

The most important for gold traders and market participants are the comments by European Central Bank President Christine Lagarde about more interest rate reductions in 2024.

Given that inflation has decreased near its original aim and economic activity is also at a fair level, many investors feel that the ECB might set two more interest rate cuts. This is because the bank is under less pressure to implement these rates, given the fact that it has lowered inflation.

Gold Price Action

The yellow metal continues to travel in a horizontal path for the time being, and it is making movements in each and every economic data point.

For example, Wednesday’s price action caused gold to go upward after the data from the US ADP failed to meet expectations.

The publication of the ISM services data, on the other hand, swiftly reversed those gains, as it suggested a lessened possibility of the Federal Reserve dropping interest rates sooner than its previous schedule.

The DXY dollar index was brought back to life because of this, which resulted in gold prices falling.
The bulls recovered control as the pandemonium subsided, and they continued to hold the idea that the fact that the ADP data did not meet the projection is a hint that the data for the NFP non-farm payrolls will also fail to meet the forecast, resulting in the Fed adding more pressure to cut rates.
Traders feel that the ECB’s rate-cut decision will put pressure on the Fed to do the same sooner rather than later, which is why gold continues an upward trend. The fact that the ECB is the first major central bank, after the Bank of England and the Fed, to cut rates is a significant event for gold dealers.
Finally, traders will pay special attention to the weekly unemployment claims in the U.S. It is possible that traders would gamble on an early interest rate decrease if the figure reflects more weakening in the circumstances of the labour market. This might result in a fall in the dollar index and an increase in the price of gold.

The gold chart below shows important price levels that the prices are likely to test in the coming days.

Gold chart by XTB


Economic data and gold

When it comes to the economic data, Wednesday was a mixed bag.

The labour force participation rate (ADP) presented a negative image of the labour market in the United States. On the other hand, the data from the ISM services index advanced firmly in the expansion region, which provided the Fed with more confidence that they are under less pressure to cut interest rates sooner.

However, once again, things are changing by the day. At the moment, market participants anticipate the Fed will reduce interest rates as soon as September.

On the other hand, the NFP data may lead to a reversal in expectations if it fails to please market participants and reflects the actual problems that are occurring in the U.S. labour market.

This indicates that markets will once again drive the Fed into a difficult situation, asking them about the degree of the drop in the labour market before taking action to protect the U.S. economy from raising rates to protect the economy.


Naeem Aslam is Chief Investment Officer at Zaye Capital Markets.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Zaye Capital Markets.