Traders Await Tomorrow’s Jobs Report

Although gold is trading higher on the day, it is most definitely well off of the intraday high achieved when gold futures hit $1525.80. As of 5 PM EDT gold futures basis the most active December contract are currently bid at $1511.10, which is a net gain of $3.20 on the day.

The current demeanor of price changes this week has been highly influenced by Tuesday’s ISM manufacturing report which indicated a major contraction between August and September of this year. The data suggested that the U.S. economy is absolutely contracting and caused a major selloff in U.S. equities that carried over into yesterday’s trading. In fact, the Dow Jones industrial average sustained a loss of over 800 points during Tuesday’s and Wednesday’s trading sessions.

This report also prompted market participants and traders to collectively bid the precious metals higher as they sought the safety of the safe haven asset group. Gold traded to its lowest price point of the current correction on Tuesday when the December contract hit $1465 intraday, before recovering and closing in positive territory at $1489 per ounce. That was followed by yesterday’s strong upside move in which gold futures opened at $1485, and broke back above $1500 closing at $1507. Just as impressive was the fact that this upside move took current pricing back above gold’s 50-day moving average.

Technically both of these factors are significant in that $1500 per ounce has been a key and critical psychological level. When coupled with a break above the 50-day moving average it indicates a high probability that gold will once again return to its bullish demeanor with the potential to take prices substantially higher.

Gold began a dynamic rally at the end of May when prices were hovering just above $1280. What would follow was the most dynamic rally in gold pricing of the year that concluded on September 4 when gold reached its highest value this year at $1565. Immediately following the $300 rally, gold began a corrective period which lasted up until Tuesday when gold hit $1465, the lowest value found during the correction.

However, it was the ISM manufacturing report which was the worst report in a decade that had a dramatic and profound impact on market sentiment, turning it from bearish to bullish. Many traders and market participants believe that this data will have a large influence on the Federal Reserve and has raised the probability of yet another rate cut this year.

Attention from market participants as well as voting Fed members will now focus upon tomorrow’s U.S. labor department nonfarm payroll report. At the beginning of the week the probability of a rate cut this year according to the CME’s FedWatch tool was at 49.2%. However as of today the CME’s fed watch tool predicts an 88.2% probability of a rate cut at the end of this month. Tomorrow’s Jobs report will certainly have an impact on the probability of a rate cut when the Federal Reserve meets on October 29, and concludes on October 30.

Wishing you as always, good trading,