Gold falls rapidly amid rumors of possible reduction of quantitative easing program

Last week, investors were mainly focused on the US Nonfarm Employment Change data. The US economy added 943,000 jobs in July, and the unemployment rate decreased to 5.4% (previous 5.9%). The labor market data were better than expected. S&P 500 and Dow Jones indices hit new all-time highs on Friday. Over the past week, the Dow Jones increased by 0.8%, the S&P 500 added 0.9%, and the Nasdaq jumped by 1.1%. The main event of the week is the US inflation data. The consumer price index is expected to fall slightly after the strongest gain last month. Traders should keep a close eye on the Fed officials' speeches (Raphael Bostic and Thomas Barkin), who are inclined to reduce the QE program. Optimistic labor market data, combined with projected lower inflation, could prompt Fed officials to begin cutting bond purchases as soon as September, which would be the first step toward a possible interest rate hike.

European stock indices closed in the green zone on Friday. Good US labor market data and strong corporate reports from many European companies triggered the growth. British FTSE 100 index increased by 0.04%, German DAX added 0.11%, French CAC 40 added 0.53%, Spanish IBEX 35 increased by 0.48% and Italian FTSE MIB jumped by 1.3%. Over the past week, the Stoxx Europe 600 composite index of the region's largest companies rose by 1.8%, growing for the third week in a row. There are no important events scheduled in Europe (except the UK) until the end of August (vacation season). Hence, the US policy is the only force that can influence the European currency.

A lot of investors' attention is now focused on gold, which collapsed on Friday and continued to fall at the opening of the market on Monday. The reason for the fall is that the gold and silver prices are highly correlated with the dollar index and the US government bond yields (inverse correlation). The strong statistical data on the labor market, as well as the projected lower inflation, made investors fear that the Fed would start cutting the QE program in September. As a result, the US government bond yields sharply increased on Friday, and with the dollar index rising, it led to a sharp drop in gold prices. At the moment, gold is falling on rumors about the possible reduction of QE. Analysts are confident that the price of gold will recover some of its position in the coming days.

Oil prices continue to decline amid fears about the spread of the Delta strain in Asian countries and a possible reduction in demand for fuel. Crude oil imports to China (the world's largest oil importer) continue to decline on a daily basis. The new restrictions introduced in China include the cancellation of flights to 46 cities. The future trend of oil prices will depend on whether countries curb the rise of the Delta strain. If the rise is stopped, oil prices will increase again.

The Asian stock market started declining again at the opening of trading on Monday. China's trade balance data released over the weekend cut growth forecasts for the third quarter, but at the same time, the country's inflation slowed to 1% (previous 1.1%) in July, which does not prevent further stimulus. China reported 125 new cases of COVID-19 on Monday, compared with 96 a day earlier. More than 20,000 infections are registered daily in Malaysia and Thailand.

Main market quotes:

S&P 500 (F) 4,436.52 +7.42 (+0.17%)

Dow Jones 35,208.51 +144.26 (+0.41%)

DAX 15,761.45 +16.78 (+0.11%)

FTSE 100 7,122.95 +2.52 (+0.04%)

USD Index 92.28 +0.54 (+0.58%)

• – China Consumer Price Index (m/m) at 04:30 (GMT+3);
• – China Producer Price Index (m/m) at 04:30 (GMT+3);
• – US FOMC Member Bostic’s Speech at 17:00 (GMT+3);
• – JOLTs Job Openings (m/m) at 17:00 (GMT+3);
• – US FOMC Member Barkin’s Speech at 19:00 (GMT+3).

by JMarkets, 2021.08.09

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.