Gold listless as investors seek direction from U.S. jobs data

Gold prices were flat on Wednesday as investors awaited a key U.S. jobs report for clues on when the Federal Reserve might start reducing its pandemic-era stimulus measures.

Spot gold was steady at $1,812.50 per ounce, as of 15:50(GMT+8), while spot silver steady at $23.81.

"A print above 1 million jobs will put the taper back front and centre and be bearish for gold. Whereas a number around 700,000, or lower, will alleviate those concerns and be supportive of gold," said Jeffrey Halley, a senior market analyst, Asia Pacific at OANDA.

Gold "lacks the momentum to trade meaningfully away from the 100 and 200-day moving average zone," he added.

Economists polled by Reuters see nonfarm payrolls increased by 750,000 in August.

A strong recovery in the labour market is a crucial prerequisite for Fed's decision on tapering.

While gold is considered a hedge against inflation and currency debasement, caused by massive stimulus measures, lower interest rates also reduce the opportunity cost of holding non-yielding bullion.

"The lack of follow through in gold (after Jackson Hole symposium) is very telling of the fact that the market recognises that the direction for policy is now starting to wind back stimulus," said DailyFX currency strategist Ilya Spivak.

Gold sees modest price gains, bulls still have momentum

Global stock markets were mostly firmer overnight. 

In overnight news, the U.S. said it has fully pulled its troops and planes out of Afghanistan, ending a 20-year war with the Taliban, who declared victory over the world’s mightiest military.

The Euro zone consumer price index for August came in at up 3.0%, year-on-year, which was a bit hotter than expectations of up 2.7%. July’s CPI reading was up 2.2%.

China’s economy was jolted in August by the resurgence of the Covid virus. The world’s second-largest economy saw its unofficial non-manufacturing purchasing managers’ index (PMI) drop to 47.5 in August, compared to 53.3 in July. A reading below 50.0 suggests contraction in the sector. It was the lowest reading since February of 2020 for this segment of the PMI survey. Meantime, China’s manufacturing PMI in August came in at 50.1 from 50.4 in July.

Broker SP Angel today reported in an email dispatch that sales of gold jewelry in China have improved significantly over the past year among younger Chinese consumers--doubling demand in the first half of 2021. China’s overall economic recovery from the pandemic combined with the increasing popularity of e-commerce websites have helped the a boom in gold demand.

Technically, gold bulls have the overall near-term technical advantage. Prices are in a three-week-old uptrend on the daily bar chart. Bulls’ next upside price objective is to produce a close above solid resistance at the July high of $1,836.20. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,775.00. First resistance is seen at Monday’s high of $1,823.60 and then at $1,836.20. First support is seen at Monday’s low of $1,807.80 and then at $1,800.00.

The silver bears have the overall near-term technical advantage but are making headway. A three-month-old downtrend on the daily bar chart has been at least temporarily negated. Silver bulls' next upside price objective is closing September futures prices above solid technical resistance at $25.00 an ounce. The next downside price objective for the bears is closing prices below solid support at $23.00. First resistance is seen at Monday’s high of $24.22 and then at $24.515. Next support is seen at Monday’s low of $23.905 and then at $23.75.

Gold price is 12% undervalued as it faces monetary policy headwinds

"Gold is facing some difficult headwinds, but it is severely underpriced, and there is a risk that we see an upside correction," Nitesh Shah, director of research at WisdomTree said.

For the gold market, he said, a lot depends on what happens during the September Federal Reserve monetary policy meeting. There are expectations that the Federal Reserve will release a detailed plan on how it will reduce its monthly bond purchases.

However, Shah added that more than just the Fed's tapering plans, their inflation outlook will be an important driver for gold.

"They keep saying inflation is transitory, but how long is transitory?" he said. "They haven't articulated how long the supply bottlenecks are to last. Once the Fed comes up with a clear message, I think gold will start to move and fill the gap."

Shah said that many investors, in believing the Fed's inflation outlook could be downplaying the current risks. Although the spike in inflation seen this summer is probably not sustainable, Shah said that inflation is not going back to pre COVID-19 levels.

"We know that the new normal is going to be different to the old normal. The world is never going to go look," he said.

Inflation is going to be a persistent theme, but Shah added that the Fed will be limited on how high it can raise interest rates.

 "You are never going to tackle the inflation problem with rate hikes, apart from if you cause deflation in certain goods, which causes economic harm," he said.