Gold trading reminder: Is there a chance for a short position in the gold price?

On Monday (October 11) Asian session, spot gold held steady at around 1757. Last Friday (October 8), the price of gold surrendered all the gains. At one time, the US employment data rose by more than 1% due to the worse-than-expected US employment data. However, investors believe that the Fed may still have sufficient reasons for the US economy this year. Getting rid of dependence on stimulus measures, gold prices subsequently fell.

Fundamentals are bullish

[U.S. non-agricultural employment numbers were significantly weaker than expected for the second consecutive month]

The US employment growth in September hit the slowest rate this year, indicating that the labor market recovery has slowed and complicating the Fed’s potential decision to begin to reduce monetary stimulus measures before the end of the year.

According to data released by the US Department of Labor on Friday, the number of non-agricultural employment increased by 194,000 in September, and the number of new jobs in August was revised upward to 366,000. The unemployment rate fell to 4.8%, partly reflecting the decline in the female labor force participation rate. At the same time, the average hourly wage has jumped.

The number of new jobs created in September was weaker than expected by all but one economist surveyed. Economists predict a median increase of 500,000 people.

The sluggish employment growth for several months shows that employers and job seekers are in a tug of war. On the one hand, companies urgently need to increase employees to meet market demand, but job seekers are slow to return to the job market. Nevertheless, in the context of corporate salary increases, the reopening of schools and the end of the federal supplementary unemployment benefits should lead to an increase in hiring in the coming months.

[Goldman Sachs downgrades U.S. economic growth forecasts for 2021 and 2022]

Economists at Goldman Sachs Group lowered their forecasts for economic growth in the United States this year and next, blaming it for the delayed recovery in consumer spending.

The research team led by Goldman Sachs Chief Economist Hatzius released the latest report on Sunday, lowering the US GDP growth forecast for 2021 from 5.7% to 5.6%; lowering the GDP growth forecast for 2022 from 4.4% to 4% , mainly due to The slowdown in consumer spending recovery is dragged down. At the same time, the increase in economic growth expectations for the next two years will basically offset the decline in this year and next. They also believe that the two major challenges facing economic growth in the medium term are the slowdown in financial support and the rebound in service sector spending faster than the slowdown in commodity purchases.

[Chairman of the San Francisco Federal Reserve: The new crown epidemic pushes up prices but the impact should subside]

San Francisco Fed President Daly said that the dislocation caused by the new crown epidemic has pushed up prices, but these pressures should gradually disappear over time.

"Everyone feels that prices are rising," Daly said on CBS's "Face the Nation" program on Sunday, which is directly related to the supply bottleneck and disruption caused by the new crown epidemic.

"I don't think this is a long-term phenomenon," she said.

Daley has voting rights in the Federal Open Market Committee (FOMC) this year and is one of the Fed’s more dovish policymakers. She said that it is too early to conclude that the economy is in a downturn.

"The delta strain has caused damage. But it hasn't derailed us yet ," Daly said.

[US stocks fell after the release of the US employment report]

The US stock market S&P 500 index closed lower on Friday. Earlier data showed that US employment growth in September was weaker than expected.

Kathy Lien, managing director of BK Asset Management, said, “I think the Fed has made it very clear that they don’t need a super strong employment report to reduce asset purchases in November. I think the Fed is still on track .”

The Dow closed down 0.03%, the S&P 500 closed down 0.19%, and the Nasdaq closed down 0.51%.

(S&P 500 daily chart)

Fundamentals are bad

[Details of the non-agricultural employment report support the Fed's reduction of expectations]

U.S. Treasury bond yields rose on Friday, and 10-year and 30-year Treasury bond yields hit their highest levels since June. Although the number of new non-agricultural jobs last month was weaker than expected, traders believe that the Fed’s downsizing time will not change.

Although the Treasury bond market fluctuated for about an hour since the data was released, the 10-year yield later rose by as much as 4.2 basis points to 1.615%. The 30-year yield once touched 2.177%. Short-term bond yields rose slightly, and the yield curve became steeper.

David Gagnon, managing director of U.S. Treasury securities trading at Academy Securities, said, “Today’s employment data seems to have reached the minimum threshold set by the Federal Reserve for the reduction in November. The unemployment rate has fallen, especially for minority ethnic groups. It can give Fed officials peace of mind because it shows that employment is moving in the right direction."

The difference between the 5-year and 30-year yields reached 113.9 basis points, an intraday expansion of 3.6 basis points, close to the high end of the fluctuation range of the past month. The break-even inflation rate of inflation-protected government bonds is close to the 2021 high.

The August employment data was revised upwards, the unemployment rate unexpectedly dropped in September and wage growth accelerated. These factors support the market’s belief that the Fed will respond to inflationary pressures.

Regarding interest rate hikes, the Eurodollar futures market on Friday showed a slight increase in the probability of interest rate hikes next year. However, market interest rate expectations are still far below the median forecast published by Fed officials last month.

[October 8 gold ETF holdings: SPDR gold holdings decreased by 1.49 tons]

According to data from gold ETFs on October 9, the world's largest gold ETF-SPDR Gold Trust held 985.05 tons of gold as of October 8, a decrease of 1.49 tons from the previous trading day.

This week's trend forecast

The key question facing gold is whether Fed Chairman Powell will continue to reduce the scale of bond purchases in November.

A few weeks ago, Powell stated that the test of reducing the size of debt purchases was "almost completed."

Analyst Millman explained: "These remarks by Powell put himself in a difficult position. Judging from the employment data, it seems unlikely to reduce the scale of debt purchases in November. If the economic data continues to be sluggish, they will not be able to raise interest rates as soon as possible. If the Fed Failure to comply with its timetable and forced to continue to support the market for longer than expected does not mean that the economy is strong, but will drive safe-haven demand for gold."

He said that the risk of gold is that the Fed chose to stick to the timetable for reducing the scale of bond purchases for transparency reasons.

"Gold may continue to trade sideways. Even though we have a large number of job vacancies, yields are still rising. The Treasury market tells us that the Fed will stick to its own schedule. The Fed is worried about its own transparency. If they have already hinted to us about them. Will reduce the scale of debt purchases, and they will tend to follow up. "

Analyst Cholly pointed out that unless the price of gold closes above Friday's high of $1,781 per ounce, it will continue to be under pressure .

Coincidentally, $1,781 is a 50-day moving average. If the price of gold closes at $1,781 or higher, it will be beneficial to those who are bullish on gold. Then we can start talking about $1,800.

But for now, the market has rejected this level, and the price of gold has returned to a level of $1,758.60 per ounce. At the same time, the $1,720 level continues to act as support.

Millman said that if gold gains safe-haven interest, he does not rule out the price of gold rising to $1,800 this week. He said: "Recently, I have been bearish on metals because I think the dollar and risk appetite have been strong. But the long-term pullback experienced by the gold market is only a temporary pause. The price this week may reach $1,800."

One of the important data to watch this week is the minutes of the September meeting of the Federal Open Market Committee (FOMC) on Wednesday.

Millman pointed out: "If there are any adjustments to the wording about reducing debt purchases, the price of gold will respond."

In addition, the market will pay attention to the US CPI report on Wednesday, and the market generally predicts that the annual inflation rate in September will remain at 5.3%.

There will be jobless claims and PPI reports on Thursday. On Friday, the market will see the latest retail data.

In general, the price of gold may be more inclined to the downside, especially after the failure of the bullish upside last Friday, the bearish risk is increasing.

(Spot gold daily chart)

GMT+8 8:42, spot gold was quoted at $1,756.88 per ounce.