- Gold rose after data from the US revealed weaker-than-expected business activity in the manufacturing sector.
- A surprise drop in US job vacancies showed a decline in demand in the job market.
- Economists expect a slight increase in employment in the US in May.
Gold prices retreated on Tuesday from the previous session’s highs as investors digested downbeat US data. Notably, there is more rate-cut optimism in the markets after last week’s US inflation data, which is keeping gold elevated.
The move on Tuesday came about as investors took profits after the previous session’s gains. On Monday, gold rose after data from the US revealed weaker-than-expected business activity in the manufacturing sector. Additionally, construction spending fell. This gave investors hope that the economy was cooling due to high interest rates, which would push the Fed to start cutting rates in September.
Moreover, after this report, the dollar weakened to a three-week low, making gold cheaper for overseas buyers and boosting demand.
US job openings (Source: Bureau of Labor Statistics)
Meanwhile, data from the Labor Department on Tuesday revealed a surprise drop in US job openings, which showed a decline in job market demand. This is welcome news for the Fed, which has kept a close eye on this sector. However, there was little reaction in the market as this was a small report compared to the nonfarm payrolls coming on Friday.
Economists expect a slight increase in employment in the US in May. The last report showed a massive drop to 175K, increasing market confidence that high interest rates were cooling the labor market. This time, forecasts show that jobs will increase by 186K, and the unemployment rate will hold at 3.9%. A bigger-than-expected increase would reduce expectations of a cut in September and weigh on gold prices. On the other hand, another unexpected drop would solidify rate-cut bets and likely lead to a price rally.
There has been a general positive bias on gold this year as traders eagerly await the start of the Fed’s rate-cutting cycle. The central bank can only start lowering borrowing costs when inflation eases. Notably, the US core PCE report last week showed a slight cooling in inflation. This and the recent downbeat reports have raised the chances of a Fed cut in September to 59%.
The positive bias has also come due to increased demand from central banks. The World Gold Council reported that net central bank gold purchases increased to 33 metric tons in April from 3 tons the previous month.
