Gold is consolidating at the high end of the recent range, underpinned by continued dollar weakness. With the dollar index plumbing 14-month lows, the yellow metal appears poised for further tests of the upside.
Key support in the dollar index is defined by the 91.92 low from May of last year. If this level is ultimately violated, there’s not much in the way of meaningful additional support until the band of congestion between 84.79/78.59 from 2012/2014.
If incoming data continues to suggest the Fed is on pause beyond September, the dollar may well indeed be vulnerable to more significant losses. If that is the case, a definitive move in gold above the $1300 threshold would seem likely.
June PCE data — which includes the Fed’s favored measure of inflation — comes out tomorrow. The chain price index is expected to be unchanged for June, confirming persistent price weakness that we saw as part of Friday’s Q2 advance GDP report. A downside miss could further erode December rate hike expectations and send the dollar reeling. And by extension, gold would continue its trend higher.
June factory orders and services PMI and ISM come out later this week and will give an indication of growth prospects. However, the big report will be the July jobs report out on Friday.
Nonfarm payrolls are expected to be 181k and the unemployment rate is expected to tick lower to 4.3%. Jobs however are the least of the Fed’s worries. Inflation and growth are their two primary areas of concern.
At some point however, they will need to reconcile why such a tight job market — at least as measured by the traditional data — has failed to generate wage inflation and by extension broader price inflation. One thing seems certain, the central bank may well have jumped the gun with their tightening campaign. Unless of course, the sole purpose was to gain a little clearance above the zero-bound so they have room to cut without going negative . . .