Gold trading reminder: U.S. dollar and U.S. Treasury yields rise, gold prices are losing ground, pay attention to ADP employment

On Wednesday (October 6) Asian time, spot gold held steady at around 1758. On Tuesday (October 5), the price of gold fell slightly, and US data boosted optimistic expectations for economic recovery, leading to higher US bond yields. The US service industry expanded faster than expected in September, which may prompt the Fed to announce a reduction in debt purchases as planned. The 10-year US Treasury yield rose to above 1.53% and the US dollar rebounded, thus suppressing the trend of gold.

In the day, the focus will be on the number of ADP employment in the United States in September. The data is expected to be better than the previous value, which is negative for the price of gold.

Fundamentals are bad

[U.S. service industry activity unexpectedly increases in September]
The service industry activity in the United States increased slightly in September, but as the epidemic continued, the continued shortage of inputs and the resulting high prices suppressed growth.

The Institute for Supply Management (ISM) said on Tuesday that continuing challenges in labor resources, logistics and materials are affecting the continuity of supply.

Oren Klachkin, chief U.S. economist at the Oxford Economics Institute, said that steady demand and a less worried attitude about the epidemic will allow the service industry to maintain growth , but this expansion will be limited due to the limited ability of the supply side to meet demand.

The September ISM non-manufacturing activity index rose slightly to 61.9 from 61.7 in August. A reading above 50 indicates the expansion of the service industry, which accounts for more than two-thirds of US economic activity. Economists interviewed previously predicted that the index would drop to 60 in September.

17 service industries including retail, construction, public administration, finance and insurance achieved growth. Only the activities of agriculture, forestry, fishing and hunting have declined.

The sub-indicator of new orders in the service industry in the survey rose slightly to 63.5 from 63.2 in August. Supplier delivery indicators fell to 68.8 from 69.6 in August. A reading higher than 50 indicates a slower delivery speed. As supply is still tight, prices remain high. The indicator for measuring input prices in the service industry rose to 77.5 from 75.4 in August.

[Spurred by the rebound of large technology stocks, the market focuses on non-agricultural employment data]

US stocks closed sharply higher on Tuesday, as Microsoft and Apple led growth stocks to rebound strongly. Investors waited for the US monthly employment data to be released later this week, which may affect the Fed's decision when to cut monetary stimulus measures.

The S&P 500 index rose 1.05%, the Dow rose 0.92%, and the Nasdaq rose 1.25%. Apple, Microsoft, Amazon and Alphabet's four largest companies by market capitalization all rose more than 1%. Growth stocks were sold off the day before.

(S&P 500 daily chart)

Facebook shares rebounded 2.1% after the company’s app and its photo-sharing platform Instagram were down for several hours on the day before, the stock was hit hard.

The S&P 500 index rose and fell more than 1% for the fourth consecutive trading day. The last time the index experienced such a large volatility was in November 2020, when it rose and fell 1% or more for seven consecutive trading days.

Longbow Asset Management CEO Jake Dollarhide said that people are trained to buy on dips like Pavlov’s dogs, reinforcing this trend. We bought at a low point, but the low point is no longer a drop of 10%. The low point is now a drop of 2%, or 4%.

An important congressman said on Tuesday that the Senate will vote on a Democratic-supported proposal to suspend the US debt ceiling on Wednesday. The current partisan policy of Congress may cause federal credit defaults and cause serious damage to the economy.

[The dollar rose slightly and hovered near a one-year high, focusing on Friday's U.S. non-agricultural employment report]

The dollar rose slightly on Tuesday, hovering near the one-year high touched last week, as traders remained cautious before releasing the key employment report this weekend, which may provide clues to the Fed’s next move.

(Daily chart of the US dollar index)

Analysts said that for the remainder of the week, foreign exchange market trends may remain basically moderate, as investors are waiting for the latest data on the US job market, which may help provide clues as to whether the Fed will begin to reduce the scale of asset purchases before the end of the year.

John Doyle, vice president of transactions at Tempus, a foreign exchange payment company, said that non-agricultural employment data has always been a factor driving market trends. If the data does not perform well, it will provide dovish support to the Fed, but if the data has surprises, coupled with the increase in inflation due to the energy crisis, it will increase the pressure on the Fed to begin to reduce the scale of debt purchases and help the US dollar.

The survey shows that the non-agricultural employment data released on Friday is expected to show that the job market continues to improve. In September, non-agricultural employment is expected to increase by 488,000 .

Shaun Osborne, chief foreign exchange strategist at Scotiabank, said in a report that as the Fed may soon begin to reduce the scale of asset purchases, once the current possible consolidation correction for the dollar ends, the conditions for the dollar to continue to strengthen are ripe.

As the U.S. Congress raises the debt ceiling to avoid the historic debt default deadline approaching, concerns about the debt ceiling begin to disturb investors.

[Evans said that as supply chain bottlenecks are resolved, inflation will fall from high levels]

Chicago Fed Chairman Evans said on Tuesday that he still believes that the supply bottleneck is the main reason for the recent increase in inflation. Although inflation is higher than initially expected and may last longer, this sharp rise will eventually subside.

In an interview with CNBC, Evans said that this year’s inflation rate is expected to be 3.5% or 4%. “Income, salary, etc. will be affected. This is a problem. We are definitely monitoring this, but this is really not monetary policy. The problem is the current infrastructure and supply problems.” He also reiterated his view that is consistent with most other Fed policymakers that the Fed is about to start reducing the size of monthly asset purchases, if the reduction action is in mid or fall of 2022 It is not surprising that it is completed .

Fundamentals are bullish

[WHO: 192 countries and regions have been infected with the delta variant]

On October 5, local time, the weekly epidemiological report of new coronary pneumonia released by the WHO showed that the number of new confirmed cases and new deaths of new coronary pneumonia worldwide continued to decline last week. Last week, there were more than 3.1 million new confirmed cases worldwide. Except for the increase in the number of new confirmed cases in the European region, the number of new confirmed cases in other regions has decreased. The five countries that reported the most cases last week were the United States, the United Kingdom, Turkey, Russia and India. At present, 192 countries and regions have been infected with the delta variant.

[IMF President: The risk of hindering the recovery of the global economy is rising]

The International Monetary Fund (IMF) said that due to the continued divergence of vaccine supply, accelerating inflation and rising debt, the global economic recovery faces more risks, and developing countries may be left behind. Compared with the 6% growth rate predicted in July, the IMF currently predicts that the GDP growth rate may slow down slightly. Vaccines, inflation, and debt problems in low-income countries are all getting worse, and this situation may last longer.

Georgieva said that since the last World Economic Outlook was announced in July, "risks and obstacles that are not conducive to the recovery of the global economy have become more obvious." It will take many years for most emerging and developing economies to recover, and this delay in recovery will make it more difficult to avoid leaving long-term economic scars. The IMF is scheduled to release new forecasts next week at the beginning of the IMF and World Bank annual meeting, which will be held in Washington in a combination of online and offline methods.

In general, gold prices are expected to continue to fluctuate before the key non-agricultural data is released, and the market is waiting for the non-agricultural report to guide the next market.

(Spot gold daily chart)

GMT+8 8:27, spot gold was quoted at US$1,57.89 per ounce.