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Gold market lacks conviction ahead of Friday's employment numbers

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(Kitco News) - The gold market continues to suffer from a lack of conviction as renewed selling pressure Tuesday keeps prices bound below the 200-day moving average. However, analysts also note that the price continues to hold critical support above $1,790.

December gold futures last traded at $1,813.50 an ounce, down 0.48% on the day.

Live 24 hours gold chart [Kitco Inc.]

Some analysts have said that the precious metal market could remain directionless through most of the week as market players await Friday's non-farm payrolls report. Economists have explained that July's labor market data could provide some direction on whether or not the central bank starts to tighten its monetary policy by cutting back its monthly bond purchase by the end of the year.

Federal Reserve Governor Christopher Waller said Monday evening, in an interview with CNBC, that if the next two monthly U.S. employment reports show continued gains, he could back an announcement soon on scaling back the central bank's bond purchases.

"If they come in as strong as the last one, then I think you have made the progress you need," he said. "If they don't, then I think you are probably going to have to push things back a couple of months."

According to consensus reports, economists are expecting that the U.S. economy created 895,000 jobs in July.

Gold's lackluster performance Tuesday can also be seen in relation to other markets. The precious metal is finding no support from a weaker U.S. dollar or low bond yields. The U.S. dollar index is testing support just above 92 points.

Meanwhile, the yield on 10-year notes is unchanged at 1.16%.

Gold's inability to rally in the current environment is frustrating some investors, according to some analysts.

"A larger allocation into gold from investors is unlikely to materialize unless growth assumptions continue to deteriorate, thereby reducing the risk of central bank action," said Ole Hansen, head of commodity strategy at Saxo Bank.

Commodity analysts at TD Securities also noted a lack of interest in gold even as the COVID-19 Delta variant continues to threaten the global economic recovery and raising the risk of stagflation – an environment of lower growth and higher inflation.

"The Fed's Flexible Average Inflation Targeting argues for a prolonged period of negative real rates, which should prompt capital to seek shelter in gold as a store of value, but melting real rates are failing to inspire a speculative boost to the precious metals complex," the analysts said. "This points to a lack of impetus for speculators to buy the yellow metal, with a Fed that is still on track for a December taper and that has signaled its willingness to respond to an inflation overshoot. In turn, downside momentum is gathering steam, catalyzing a CTA selling program which could drive gold below key technical thresholds. In this context, TD Securities' forecast for a strong beat on this week's non-farm payroll data could add further momentum to the downside."

Last week TD Securities announced a strategic short position in gold and is looking for prices to fall to $1,730 an ounce by the end of October.

Although gold prices are not currently reacting to bond yields, analysts at Commerzbank said that they don't think this trend is sustainable.

"From a technical viewpoint, the gold price will soon have to 'decide,' so to speak, where it is headed, as the 100- and 200-day moving averages are converging more and more. In our view, the negative real yields, which for ten-year bonds in the U.S. remain at the record-low level of -1.18%, point to higher gold prices," the analysts said.

It's not just gold that appears to be stuck. Silver is also stuck in a trading channel with support at $25 an ounce and initial resistance at $26 an ounce.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.