A close above 5,865 on the Nifty would see the upmove continuing. However, if the benchmark closes below 5,760 we may see it heading towards 5,565
Gold could come under severe selling pressure if Friday’s US job reports point at further improvement in the labour sector, said Anand Rathi in its report
Monthly payrolls data from the US offer good insight into the health of the world’s largest economy. As such, they are closely monitored by bullion traders and investors. Gold has been very sensitive to the outcome of these reports. This has been the case in the past few months, ever since the Fed stated that the continuation of its asset purchases would depend on the progress in the labour market, according to Anand Rathi Commodity Research in its report “Gold-Caution Ahead”. One of the key reasons that have kept gold under pressure this year has been signs of improvement in the labour sector. [Since the introduction of QE3 last September, the jobless rate in the US has declined from around 8% to a four-and-half -year low, while the payrolls data releases have indicated a steady pace of hiring by employers.]
If the labour report on Friday points to further improvement, speculation will intensify that the Fed could start tapering its QE from after the September meeting. This would benefit the dollar and lift Treasury yields to fresh multi-week highs. This combination would reduce the appeal for gold and push prices back the year-to-date low ($1,180), and possibly further lower in the coming sessions.
However, if the data hints that progress in the labour market might be slowing down, speculation of an imminent tapering off of QE is likely to abate. This would benefit gold and lift it towards $1,300, said the Anand Rathi report.
From the above table, it may be observed that most of the national employment reports which have come out from the US (for June) have indicated further progress in the labour sector. The ISM manufacturing employment index was the only dark spot, as it unexpectedly contracted in June for the first time since September 2009. However, the effect of this is likely to be restricted as the ISM non-manufacturing employment index last month rose handsomely to a four-month high. (In the US, the non-manufacturing sector constitutes nearly 90% of the economy). Considering all this, there is a good possibility that the non-farm payrolls report for June, due later on Friday, could top market estimates of 165,000.
The outcome of the payrolls data would be very crucial to gauge the further direction in gold, as it would offer clues surrounding the timing of the tapering off of the QE. Recent labour reports from the US have shown a steady pace of jobs addition in the world’s largest economy. “If the latest labour data are supportive while the unemployment rate slides, speculation that the Fed at the September meeting would decide to roll back its stimulus would gain further momentum. This would reduce the appetite for gold.
“However, if the data falls short of market expectations and prints below 150,000, speculation about a decision at the September meet regarding the QE being tapered down would certainly ease”, said the Anand Rathi report. This could lead to considerable short covering in gold and boost prices.
“Meanwhile, we expect gold to be modestly squeezed even if the data prints in line with market expectations as this would indicate the steady progress being made in the labour sector” Anand Rathi concluded.