The US ADP data provided gold traders with news they had been anticipating, a reading that significantly missed the forecast. Now that we have further confirmation that the US labor market has lost its momentum, it has significantly altered the outlook for the Fed. Previously, the Fed had been confident in its ability to maintain higher interest rates for an extended period, without concern for the labor market's health, which had been extremely tight at one point. However, the Fed has now shifted its strategy, leading to a decline in the dollar index and a positive impact on the gold price. However, again, I think that the big piece of the puzzle is still missing, which is the US NFP—the overall and more clear picture of the US labour market—and a miss on the forecast would have a significant impact on the gold price.
Background
Today, traders have been very much focused on the second most important economic reading, which is the US ADP data. Generally speaking, this number typically sets the tone for the main labor market number, which is the US NFP data. The data released today indicates a significant slowdown in the private job market during the month of May, with companies adding only 152K jobs, significantly less than the downward revision of 188K and also below the forecast of 175K. If we look at this data print and compare it with the previous months, this was the lowest print since January, and this tells us one thing very clearly: the Fed cannot be confident about the private employment data.
Moving Forward
This week, we have had two prints in relation to the US job market: the US JOLTS data and the US ADP number, and both of these numbers have the same echo—the Fed is wrong if they think that the labour market is tight. Smart money already knows that if the labour market is not strong enough, no matter what the hawkish members of the FOMC committee think, the Fed Chairman will have no other option but to begin the process of lowering the intertest rate.
However, they are also closely monitoring the US NFP data, which is scheduled for release on Friday. The forecast for the US NFP data is 186K, while the previous number came in at 175K. Given that the US ADP number fell short of the forecast and the revised downward number in today's print, we anticipate further disappointment in the data on Friday.
What Matters for the Gold Price
The US ADP data has had a positive influence on the gold price today, causing it to move higher. This is because traders do not anticipate or hope for a rate cut from the Fed.
Between now and Friday, I do think that the price action for the precious metal is going to very much remain sideways. On the upside, we can expect the price to trade in the region or within the boundary of 2362, while on the downside, we should focus on the number 2313. On Friday, if the data missed expectations by a significant amount, we could see the price action breaking the range mentioned above. However, if there is no significant difference and the data is close to its forecast level, we may witness a gradual downward move, potentially falling below the 2,300 mark.
