Gold consolidates near record highs, flat-lined around $2060 area ahead of NFP

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  • Concerns about escalating US-China tensions pushed gold to fresh record highs on Friday.
  • A goodish pickup in the USD prompted some profit-taking amid overbought conditions.
  • The downside remains cushioned ahead of Friday’s release of the US monthly jobs report.

Gold seesawed between tepid gains/minor losses through the Asian session and now seems to have stabilised in the neutral territory, around the $2060 region.

The precious metal edged higher during the early part of the trading action on Friday and shot to fresh record highs amid concerns about a further escalation in the US-China tensions. The US President Donald Trump signed executive orders banning US transactions with China’s tech giant Tencent – which owns the popular WeChat app – and ByteDance – the owner of video-sharing app TikTok. The announcement took its toll on the global risk sentiment and was evident from a modest pullback in the equity markets. This, in turn, provided a modest lift to the precious metal’s safe-haven status.

The global flight to safety led to a fresh leg down in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond dropped back closer to an all-time closing low level of 0.501% and extended some additional support to the non-yielding yellow metal. However, a goodish pickup in the US dollar demand kept a lid on any additional gains for the dollar-denominated commodity, rather prompted some profit-taking at higher levels amid near-term overbought conditions, though the pullback remained cushioned in the wake of growing worries over the US economic recovery.

Investors remain concerned that the US economy could be stalling again due to the country’s poor performance in containing the coronavirus outbreak. This coupled with the political stalemate over the shape and size of the next U.S. fiscal recovery package further extended some support to the precious metal. After concluding talks on Thursday, the US Treasury Secretary Steven Mnuchin warned that Republicans and Democrats are still very far apart on key issues. Mnuchin further added that Trump is prepared to issue an executive order if the two sides fail to meet the end-of-the-week deadline.

Moreover, traders might be reluctant to place any aggressive bets ahead of Friday’s release of the closely watched US monthly jobs report, which further seemed to have contributed to the consolidative price action on Friday. The headline NFP is expected to show that the US economy added 1.6 million jobs in July and the unemployment rate is expected to edge lower to 10.5% from 11.1%. A disappointing reading will further fuel worries that the US labour market recovery was faltering and prompt traders to continue dumping the USD selling, which should pave the way for an extension of the metal’s recent strong bullish trajectory.

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