Gold May Extend Slow Ascent as Market Uncertainty Prevails

Fundamental Forecast for Gold: Neutral

• Gold Technical Positioning Points to Major Top in the Works
• Trade Volumes Hint Little Follow-Through Behind Gold Gains

Gold seems to reflect the shaky climate prevailing across financial markets more than any other trading instrument. Indeed, short-term correlation studies suggest that prices seem to have largely decoupled from other benchmark assets as traders decide which of the yellow metal’s properties – its allure as a store of value or its perceived attraction as an inflation hedge – are going to set the tone for price action. This indecision belies the larger uncertainty about the continuity of the global economic recovery as most of its engines look increasingly faulty: Europe is likely to be sidelined as it works to unwind its sovereign debt burden, Japan remains mired in deflation, China is willfully pulling on the breaks amid fears of overheating, and the recent batch of US data forcefully argues for a substantial slowdown in the second half of the year. It seems that this very uncertainty has been behind the cautious build in gold prices as investors prepare for all eventualities, with prices creeping higher for the past four weeks all the while the average true range measure of price volatility drops to the lowest in five months.

Looking ahead, the US economic calendar remains in focus as traders look to the health of the world’s largest consumer market as the bellwether for the global recovery at large, and the docket has no shortage of significant event risk. The spotlight will understandably fall on the employment report due on Friday, with expectations calling for the typically market-moving Nonfarm Payrolls figure to show the economy shed 100,000 jobs in August, marking the smallest decline since the metric turned negative for the first time this year in June. However, traders may be more concerned with the Private Payrolls result, a gauge undistorted by volatility in census-related hiring to give a more accurate reading on the underlying strength of the labor market. Here, the outcome looks less encouraging, with expectations calling for a gain of 47,000 jobs, down from the previous month’s 71,000 increase. Elsewhere, median forecasts point toward a mixed week of indicators: Personal Income and Spending are expected to improve in July while Consumer Confidence ticks higher in August; on the other hand, the ISM gauge of manufacturing growth is expected to decline for the fourth consecutive month while negative readings on Pending Home Sales and Construction Spending figures reinforce last week’s our housing data.

All told, this makes for a clouded gold outlook in the days ahead. The path of least resistance points toward a continuation of the metal’s gradual ascent as the mixed data docket is seemingly unlikely to offer much by way of trend-defining clarity. On balance, all eyes are likely to look toward the jobs report for some much-needed directional conviction.