Gold Prepares for Upward Momentum as US Jobs Data Looms

Gold is preparing for upward momentum as the U.S. jobs data release looms, with mixed signals from the labor market and manufacturing sector contributing to heightened uncertainty. The ISM Manufacturing PMI has shown a slight improvement, though the sector remains in contraction, fueling demand for gold as a safe-haven asset amid ongoing economic uncertainty. The upcoming Non-Farm Payroll (NFP) report will play a key role in determining market direction as the gold price is stuck between $2470 and $2530. This article presents the economic outlook and technical analysis of the gold market to determine its next direction. It finds that gold is showing strength following the breakout and appears poised to move higher.

Manufacturing Sector and Labor Market Uncertainty

The ISM Manufacturing PMI recovered to 47.2% in August, as shown in the chart below. This indicates a slight improvement in the manufacturing sector, although it remains in contraction for the sixth consecutive month. A PMI below 50 indicates that the sector is still shrinking. Since the manufacturing sector is sensitive to economic downturns and plays a critical role in recessions by shedding a significant number of jobs, this continued contraction highlights ongoing challenges. However, the fact that the decline is slowing offers a potential early sign of stabilization, which could influence investor sentiment. For the gold market, the persistent contraction in manufacturing increases demand for gold as a safe haven asset since this suggests lingering economic uncertainty despite the modest improvement.

On the other hand, the solid growth in other cyclical sectors, such as construction and transport & warehousing, and the strengthening of non-residential construction spending may mitigate some of the negative sentiment from the manufacturing slowdown, as shown in the charts below. Government efforts to re-shore critical supply chains and invest in infrastructure are bolstering these sectors, contributing to economic resilience. This mixed outlook could temper the bullish momentum in the gold market as the broader economy demonstrates signs of stability outside of manufacturing. Still, if inflation remains persistent and economic uncertainty continues, the overall demand for gold stays strong, especially as a hedge against both inflation and potential future economic turbulence.

The Non-Farm Payroll (NFP) report is scheduled to be released in the next three hours, which adds a layer of uncertainty to the gold market due to the mixed signals from the above-discussed labor market indicators. The weaker-than-expected ADP report highlighted the addition of only 99,000 private-sector jobs. This indicates a sharp slowdown in hiring. This trend raises concerns that the U.S. labor market may be losing momentum. Additionally, the ADP report indicated job losses in high-paying sectors like tech and professional services, which could be a red flag for the broader economy. As gold often acts as a hedge against economic uncertainty, a weak NFP report could push investors toward safe-haven assets, leading to an increase in gold prices.

On the other hand, if the NFP report shows stronger-than-expected job creation, it could dampen the recent bullish sentiment for gold. A robust labor market would imply that the Federal Reserve may hold off on interest rate cuts, which could limit inflationary pressures and reduce the appeal of gold as an inflation hedge. However, there is still a possibility of a downside reaction if the market interprets a strong report as delaying monetary easing, which could lead to tightening liquidity conditions. In either case, the labour market data will induce volatility in the gold market due to the mixed economic signals. However, this volatility may lead to sharp moves in both directions, though the primary trend for gold remains upward.

Bullish Technical Picture Ahead of Employment Data

The recent technical outlook for gold remains strongly bullish, as seen in the daily line chart. This chart provides more accurate price projections and indicates that this week’s drop in the gold market towards the weekly pivotal level of $2,470 has not damaged the bullish outlook; instead, it has further strengthened it. Prices are now poised for the next surge higher. This bullish price structure has started forming an ascending broadening wedge pattern, highlighted by the blue dotted lines from April to August. This price consolidation broke the pattern in August 2024, as forecasted in a previous article, which anticipated that the price correction in May and June would likely be completed by July, followed by rallies in July and August. The price has also broken the blue dotted trend line, signalling that prices are headed higher as long as the support of the red ascending broadening wedge pattern holds. The target of this price projection is $2,700-$2,800, and last week’s consolidation between $2,470 and $2,530 has further strengthened this bullish outlook.

To further understand the above discussion, the chart below illustrates the price spikes on a short-term basis using candlestick charts. It shows that gold’s breakout from the channel has completed its correction back to $2,470, and the quick reversal on Wednesday within the 4th September cycle has initiated a strong move to the upside. Now, the price is poised to break record highs and begin the next strong move towards $2,700-$2,800. The double bottom formation, highlighted by the blue arcs, further strengthens the bullish outlook in the gold market.

Gold formed a bullish hammer on Wednesday, followed by strong follow-through on Thursday, strengthening the overall price pattern ahead of the NFP announcement. Any negative data could drive gold prices to higher levels. However, due to mixed signals from the manufacturing data, the NFP news could trigger significant volatility. If gold prices are lower, it would present a good buying opportunity for gold traders.

Bottom Line

In conclusion, gold is positioned for potential upward momentum as the U.S. Non-Farm Payrolls report approaches, with the market responding to mixed signals from both the manufacturing and labour sectors. The ISM Manufacturing PMI remains in contraction, supporting demand for gold as a safe-haven asset. At the same time, uncertainty surrounding the labour market, particularly with weaker ADP figures, adds to the volatility. From a technical perspective, gold has broken the $2,500 level, and the price correction back to $2,470 has sparked a rally. Therefore, any price dips are considered buying opportunities for gold traders.