Gold on defensive around $2050-55 region ahead of NFP

August 7, 2020

London (Aug 7)  Gold was seen trading with a mild negative bias near the lower end of its daily range, just above the $2050 level ahead of the closely watched US monthly jobs report.

Following an early uptick to a fresh record high level of $2075, the precious metal witnessed some intraday pullback and for now, seems to have snapped three consecutive days of the winning streak. A goodish pickup in the US dollar demand was seen as one of the key factors that prompted some profit-taking around the dollar-denominated commodity amid near-term overstretched conditions.

However, the downside is likely to remain cushioned in the wake of mounting tensions between the US and China. The US President Donald Trump signed executive orders on Thursday, banning US transactions with popular Chinese apps, Tencent's WeChat and ByteDance's Tiktok. This, in turn, took its toll on the global risk sentiment and might extend some support to the precious metal's safe-haven status.

This comes on the back of growing market worries about the pace of the US economic recovery, the political deadlock over the next round of the US fiscal stimulus and sliding US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond dropped back closer to all-time closing lows, which should attract some dip-buying around the non-yielding yellow metal.

This makes it prudent to wait for some strong follow-through selling before confirming that the recent strong bullish run might have run out of the steam as investors start positioning for Friday's important US macro data. The headline NFP is expected to show that the US economy added 1.6 million jobs in July and the unemployment rate is anticipated to fall to 10.5% from the 11.1% previous.

Against the backdrop of Wednesday's disappointing ADP report, a softer reading will further add to concerns that the US labour market recovery is faltering and prompt some fresh USD selling. This would eventually provide some impetus to the commodity and assist traders to grab some meaningful opportunities on the last day of the week.


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