On Thursday (September 5th), the US dollar was suppressed due to weak ADP employment data, and spot gold surged by over $20. On Friday, investors will receive the US non farm payroll report, which is expected to trigger a major market trend.

Spot gold closed up $21.36, or 0.86%, at $2516.58 per ounce on Thursday; The highest intraday gold price reached $2523.54 per ounce.

Analyst Christian Borjon Valencia pointed out that gold prices broke through the $2500/ounce mark on Thursday and rose sharply during the North American session. The decline in US treasury bond bond yields and the weakening of the US dollar supported further gains in gold prices.

ADP private employment data growth is at its lowest level since 2021, exacerbating concerns about a slowdown in the US labor market.

On Thursday, the United States released the ADP employment report, also known as the "small non farm payroll," which showed that the seasonally adjusted number of private sector jobs in August increased by 99000, the lowest since January 2021, far below economists' expectations of 144000 and lower than the downward revised 111000 in July.

ADP data further confirms the weakness in the job market, with the market increasing its bet on a 50 basis point rate cut by the Federal Reserve later this month.

After the ADP data was released, the yield of US treasury bond bonds fell, and the 10-year treasury bond bonds fell by 3 basis points to 3.727%, depressing the US dollar. The US dollar index, which measures the value of the US dollar against six other currencies, fell more than 0.21% to 101.05.

Phillip Streible, Chief Market Strategist at Blue Line Futures, stated that the surge in gold prices following the release of ADP data does indicate a severe state of the labor market, and there are many concerns about it.

According to CME's "Federal Reserve Watch" tool, traders currently expect a 59% chance of a 25 basis point rate cut by the Federal Reserve this month and a 41% chance of a 50 basis point rate cut.

San Francisco Fed President Mary Daly said it is almost certain that the Fed may lower borrowing costs. She commented that the Federal Reserve needs to cut interest rates to maintain the health of the labor market.

Valencia stated that gold traders are preparing for the release of the August non farm payroll report. Economists predict that the non farm payroll in the United States is expected to increase by 160000 in August, following an increase of 114000 in July; The unemployment rate in the United States may decrease from 4.3% to 4.2% in August.

Han Tan, Chief Market Analyst at Exinity Group, said, "If the unemployment rate in August remains the same as 4.3% in July (the highest level since 2021), then as the market increases its bets on a significant interest rate cut, gold prices will return to historical highs

Gold has recently shifted its focus upwards, however, we need to see the results of Friday's non farm payroll report to obtain clearer directional signals. If the non farm payroll data disappoints, gold prices may test new historical highs again, "said Slobodan Dvenica, an analyst at renowned Windsor Brokers

How to trade gold?

Analyst Christian Borjon Valencia pointed out that before the release of the non farm payroll report, gold prices had risen to a two-week high above $2500 per ounce. The price trend shows that, as indicated by the Relative Strength Index (RSI), buyers are accumulating momentum and aiming to rise within the bullish territory.

Valencia stated that the path of least resistance for gold is upward, and gold prices may challenge the high of $2531 per ounce so far this year. If it breaks through this level, the next target for gold prices will be the psychological level of $2550 per ounce, followed by the level of $2600 per ounce.

(Daily chart of spot gold)

Valencia added that, on the contrary, if the gold price falls below $2500 per ounce, the next support level will be the August 22 low of $2470 per ounce. Once this level is breached, the next support area will be the confluence of the April 12th high (which turns into a support level) and the 50 day simple moving average (SMA) at $2435-2431 per ounce.