On Wednesday (July 3rd) in the Asian morning trading, spot gold fluctuated narrowly and is currently trading around $2331.15 per ounce. gold prices fluctuated slightly on Tuesday, falling 0.11% to close at $2329.15 per ounce. The strong performance of US job vacancy data has put pressure on gold prices, but Fed Chairman Powell's speech leans towards the dovism, and the decline in US dollar and bond yields has provided support for gold prices. Of course, gold prices have shown an overall volatile trend, and most investors are waiting for more interest rate cutting clues from US employment data later this week.

Phillip Streible, Chief Market Strategist at Blue Line Futures, said, "The market remains highly sensitive to any discussions about interest rates or Federal Reserve policy. Therefore, I believe the market is still in a wait-and-see situation."

Tuesday's data showed that the number of job vacancies in the United States increased to 8.14 million in May, higher than market expectations of 791 and the previous value of 805.9.

Powell said on Tuesday that the United States is returning to a "downward trajectory of inflation", but decision-makers need more data to verify whether the recent decline in inflation rates accurately reflects the economic situation before lowering interest rates.

The focus now shifts to Friday's non farm payroll data, which is crucial for assessing the resilience of the US labor market against the backdrop of decades high interest rates.

The minutes of the Federal Reserve meeting will be released on this trading day, and investors need to pay close attention. In addition, the US June ADP employment data, US June ISM non manufacturing PMI, and US May factory order month rate will be released on this trading day. Investors need to pay attention to them. In addition, they need to pay attention to the speeches of Federal Reserve officials and news related to the geopolitical situation.

However, as July 4th is the Independence Day holiday in the United States, the market will be closed early this trading day, which may slightly limit trading space. Investors need to be cautious.

Job vacancies in the United States increased in May, but the employment market trend is still slowing down

The job vacancies in the United States in May have increased after a significant decline in the first two months, but this trend is still consistent with the easing of labor market conditions, which may pave the way for the Federal Reserve to cut interest rates this year.

The Job Vacancies and Labor Mobility Survey (JOLTS) released by the US Bureau of Labor Statistics shows that there were 1.22 job vacancies per unemployed person in May, which is the same as April and the lowest since 2021. Previously, it was estimated that the corresponding proportion for April was 1.24. At present, the proportion is not significantly different from the average of 1.19 in 2019.

"The data shows that the supply and demand relationship of labor is becoming normal," said Rubeela Farooqi, Chief US Economist at High Frequency Economics. "From a policy perspective, the future challenge for the Federal Reserve will be to maintain interest rates at a level that helps curb inflation while preventing unnecessary damage to the labor market."

The US Department of Labor's Bureau of Labor Statistics stated that on the last day of May, the number of job vacancies measuring labor demand increased by 221000 compared to the end of April, reaching 8.14 million. The data for the end of April was lowered to 7.919 million job vacancies, instead of the previously reported 8.059 million. Economists interviewed previously predicted that there would be 7.91 million job vacancies in May.

The number of job vacancies reached a record high of 12.182 million in March 2022. Since the beginning of this year, the number of job vacancies has decreased by 1.2 million.

The gradually restoring balance of the labor market and the easing of inflation have brought the Federal Reserve closer to starting its easing cycle, and financial markets still expect the first rate cut in September. Since July last year, the Federal Reserve has maintained its target range for overnight interest rates at the current 5.25% -5.50%. Since 2022, the Federal Reserve has raised policy interest rates by 525 basis points to curb inflation.

The vacancy rate has increased from 4.8% in April to 4.9%. Driven by the professional and commercial services industry, as well as the construction industry, the number of recruits increased by 141000, reaching 5.756 million. However, the recruitment numbers in the retail, accommodation and catering services, and manufacturing industries have decreased. In the past year, the number of recruits has decreased by 415000. The employment rate has increased from 3.5% in April to 3.6%.

The number of layoffs increased by 112000, reaching 1.654 million, due to a decrease in job positions in professional and commercial services, leisure and hotel, and other service industries. But the number of layoffs in the manufacturing industry has decreased. The layoff rate has remained at 1.0% for the third consecutive month.

Due to the labor market not being as tense as in previous years, the number of workers changing jobs is decreasing.

The number of resignations has not changed much, reaching 3.459 million. The resignation rate, which measures confidence in the labor market, has remained at 2.2% for the fourth consecutive month. The stable resignation rate indicates a mild future wage pressure, which is a good omen for the overall inflation outlook.

Powell stated that the United States is on a "downward trajectory of inflation", but more data is needed before interest rate cuts can be made

Federal Reserve Chairman Powell said on Tuesday that the United States is returning to a "downward trajectory of inflation", but decision-makers need more data to verify whether the recent decline in inflation rates accurately reflects the economic situation before lowering interest rates.

In May, data showed that the Federal Reserve's preferred inflation indicator remained unchanged month on month, with a year-on-year increase falling to 2.6%, still higher than the Fed's target of 2%. However, after rebounding in the first few months of this year, it is currently on a downward trajectory.

"We just want to understand that the data we see reflects the actual situation of core inflation," Powell said in a statement by the European Central Bank

At a central bank monetary policy meeting hosted by Sintra, Portugal, it was stated, "I believe that the previous data... and the previous data to some extent indicate that we are returning to the track of declining inflation. Before we begin to... relax policies, we hope to be more confident that the inflation rate is continuing to decline towards 2%."

Powell declined to comment on when the United States may start cutting interest rates, but acknowledged that the Federal Reserve has entered a sensitive stage of policy review, and the risks to inflation and employment targets are "closer to balance," which means that neither can be given full priority when formulating policies.

In particular, some closely monitored employment market indicators suggest that the US economy may be approaching a critical point where further progress in inflation will prompt the Federal Reserve to strike a balance between declining inflation and rising unemployment. So far, the Federal Reserve has avoided the latter scenario.

"You cannot precisely know where the critical point is," he said, "but we know we face two risks."

For over two years, the unemployment rate in the United States has been at or below 4%, and many Federal Reserve decision-makers advocate for patience when deciding when to lower benchmark policy rates. "Given the strong economic performance we have seen, we can approach this issue with caution," Powell said, while also pointing out that policymakers do not want policies to be too tight for too long, leading to "loss of expansion.".

Chicago Fed Chairman Goolsby said he felt a "warning signal that the real economy is weakening", and although the economic situation remains strong, the Fed needs to be cautious not to keep monetary policy at such a tight level for too long.

Although by historical standards, the current unemployment rate is at a low level, it has steadily increased from 3.4% in April 2023 to 4% in May. The US Department of Labor will release June employment data on Friday. The challenge facing the Federal Reserve is to decide how and when to send signals of impending policy adjustments, especially considering that further progress in the fall in inflation is expected to be slow. Powell said on Tuesday that the inflation rate may not return to the Federal Reserve's target of 2% until the end of next year or 2026

Powell said he expects the overall inflation rate to remain between 2% and 2.5% in one year, which he sees as a "good outcome".

Gulsby and some other decision-makers believe that at certain times, a decrease in inflation rates should trigger a decrease in interest rates to maintain the "real" borrowing costs adjusted for inflation without increasing.

Short term interest rate futures in the United States remained relatively stable on Tuesday, with futures prices continuing to suggest that the Federal Reserve will cut interest rates for the first time in September and for the second time in December.

Whether the Federal Reserve will ultimately cut interest rates in September or later will depend on future employment and inflation reports, including Friday's June employment report and the June Consumer Price Index (CPI) released on July 11th.

The Federal Reserve will hold its next policy meeting from July 30th to 31st.

Although the timing of the first rate cut may not have much to do with the greater economic gains sought by the Federal Reserve, decision-makers are very sensitive to the signals they send through rate cuts.

They particularly hope to ensure that reducing borrowing costs for the first time becomes the beginning of the next round of comprehensive monetary easing, steadily lowering interest rates to levels that the Federal Reserve deems neither encouraging nor hindering investment and consumption by businesses and households.

For many decision-makers, this has always been an argument in favor of patiently waiting longer for the first interest rate cut.

The US dollar fell slightly on Tuesday, with Powell's dovish remarks overshadowing the impact of optimistic job vacancy data

The US dollar fell 0.1% in light volatile trading on Tuesday, closing at 105.69. Earlier in the day, it was expected to rise 0.23% to 106.05. The high exchange rate rose and fell, increasing the risk of short-term downside in the future, which is expected to provide an opportunity for gold prices to fluctuate higher.

"Powell didn't actually say anything new, but I think he leans slightly towards the dovish side," said Erik Bregar, Head of Foreign Exchange and Precious Metals Risk Management at Silver Gold Bull, whose remarks drove the US dollar down slightly. But I think the JOLTS report is not as strong as it appears on the surface. The April data has been revised down, so the market is trying to shake off the impact of this report. That's why the US dollar hasn't been as high as it was just after the report was released

According to calculations by the London Stock Exchange Group (LSEG), the likelihood of a September rate cut digested by the US interest rate futures market has increased from approximately 63% on Monday to 69%, following the JOLTS report and Powell's speech. The market also expects to cut interest rates once or twice in 2024.

Daily chart of US dollar index

technical analysis

At the daily level, gold prices have recorded a "cross star" candlestick for three consecutive trading days, and it is near the middle track of the Bollinger Line, indicating a strong wait-and-see sentiment in the market and a lack of clear direction. Given that gold prices have rebounded after receiving support from the lower track of the Bollinger Line, KDJ's gold cross is running, and short-term gold prices are slightly inclined to fluctuate upwards. Pay attention to resistance near last Friday's high of 2339.64, and if it can break through this position, gold prices will further impact resistance near the online track of 2365.24. In the short term, there are also some resistance near the 2350 level.

Pay attention to the support near Monday's low point of 2318.40, the support at the 2310 level, and the support at the 2300 level. The Bollinger Line's offline support is currently around 2292.48.

The Bollinger Line track is running close to horizontal, and pay attention to the breakthrough situation of the Bollinger Line track in the area of 2292.48-2365.24.