Gold (XAU) Price Forecast: Bullish Setup Ahead of ADP Jobs Report and Fed Rate Cut Bets

Gold Prices Supported by Rate-Cut Expectations and Weak Job Data

Gold prices surged nearly 1% on Thursday, recovering from recent lows as buyers defended key support levels. After rebounding from Wednesday’s bottom of $2,471.91, gold recaptured the $2,501.31 pivot, positioning it close to the record high of $2,531.77. The rise in gold prices is driven by increasing expectations of a more aggressive U.S. Federal Reserve rate-cutting cycle, which traders anticipate could begin this month.

At 11:22 GMT, XAU/USD is trading $2516.19, up $20.65 or +0.83%.

Fed Rate Cuts Fuel Gold Demand

The primary driver of Thursday’s rally is the growing belief that the Federal Reserve will initiate a more substantial rate-cutting cycle due to signs of a slowing U.S. economy. Recent data, including Wednesday’s Job Openings and Labor Turnover Survey (JOLTS), showed job openings fell to a three-and-a-half-year low, raising concerns about the labor market’s strength. As a result, traders are now pricing in a 57% chance of a 25-basis-point rate cut and a 43% probability of a 50-basis-point cut for September, according to the CME FedWatch tool.

Ole Hansen, head of commodity strategy at Saxo Bank, noted that the global economic slowdown has increased downside risks across growth-dependent commodities, adding further support for gold. As rate cuts lower bond yields, gold, which offers no yield, becomes more attractive to investors.

ETF Buying Resumes as Treasury Yields Fall

The anticipation of a rate cut has also spurred renewed interest in physically-backed gold exchange-traded funds (ETFs). These funds had seen outflows in recent years as investors favored U.S. Treasury bonds, which offered higher yields. Now, with yields expected to drop, ETFs are once again increasing their gold holdings.

Carsten Menke, an analyst at Julius Baer, highlighted that while the Fed’s potential rate cuts will keep interest rates in restrictive territory, above the neutral rate, this could limit a major wave of buying by Western gold investors. However, gold has still gained 22% year-to-date, marking its strongest performance since 2020.

ADP Employment Data to Influence Fed’s Next Move

The next significant market mover will be the ADP Employment Change report, scheduled for release today. Economists expect private-sector job growth of 144,000 in August, which would surpass July’s figure of 122,000. The ADP report, along with Friday’s nonfarm payroll data, will provide further clarity on the labor market’s health. Any surprises could shift the Fed’s approach at its upcoming September 17-18 policy meeting.

A stronger-than-expected ADP report might dampen expectations for a larger rate cut, while weaker data would likely fuel expectations for more aggressive easing. Treasury yields, already impacted by the weak JOLTS report, could see further volatility based on today’s ADP results.

Gold Prices Forecast

Given the weakening labor market data and heightened expectations of Fed rate cuts, the short-term outlook for gold remains bullish. A deeper rate-cutting cycle would continue to support gold prices, especially if upcoming jobs data further confirm economic slowing.

With central banks continuing to buy gold and safe-haven demand persisting, the metal is poised to challenge its record high of $2,531.77 in the near term. However, any unexpected strength in the labor market could limit upside momentum.