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(Kitco News) With the surprisingly strong employment situation in the United States, the Federal Reserve will not break free in September from its aggressive tightening cycle, which analysts believe will hurt gold in the short term. Next week the focus will be on the long-awaited inflation figures.

Gold lost 1% in response to the US economy adding 528,000 jobs in July, well beating expectations of 250,000. As of this writing, gold futures December were trading at $1,788.90 after climbing above $1,800 an ounce on Thursday.

“Today’s jobs data came as a surprise, and the idea that the Fed might be aggressive in raising interest rates hasn’t helped gold prices,” he said. Frank Cholly, senior market strategist at RJO Futures, told Kitco News.

Last week, there was a lot of confidence in the market that the Fed could reverse its excessive rate hikes early on the back of the slowing economy. However, that all changed this week, especially with the strong jobs report, said Edward Moya, senior market analyst at OANDA.

“It’s a game changer. Confidence in the functioning of the Fed was quite high. Some even expected it to happen as early as September. Now the focus is on whether the Fed should be more aggressive. Gold is just going to struggle here as expectations for rate hikes will be reinforced next week,” Moya told Kitco News.

He pointed out that markets reassessing their expectations of the Fed toward bigger rate hikes pose a challenge for gold.

This is especially true after gold attempted to break above USD 1800 and failed this week. “It looked like gold would try to stabilize above. It’s going to be tough for gold to continue. It went from $1,700 to $1,800 in one move, and it looks a bit run down here,” Moya noted.

However, Friday’s pullback won’t mean a big selloff at $1,700 an ounce, he added. “The $1,750-$1,770 area is a good level of support for gold,” Moya said.

From a technical standpoint, Cholly sees a lot of buyers coming into the $1,735-$1,750 level. On the resistance side, it’s critical that gold break above $1,800 an ounce and then Cholly turns bullish.

“I don’t think we’ll see $1,700 more because of the support there, but for the bulls to come back, gold needs to close above $1,800. And if gold can handle a breach through the $1,800-$1,812 level, buying becomes aggressive and we will have no problem reaching $1,850-$75.This is where the momentum comes in,” Cholly added.

Inflation figures in pictures

Much of the focus next week will be on the July inflation report in the US, with economists forecasting the annual CPI to hit 8.7%, after accelerating to 9.1% in June. Any surprises beyond these expectations would be negative for gold.

“Next week will be all about inflation and price pressures could be stubbornly high. This suggests that Treasury yields could rise further and the US dollar will do well next week,” Moya noted. Markets here will be nervous that the bond market sell-off may intensify, which is never good for non-interest-bearing gold.”

Analysts have warned that if inflation turns out to be higher than expected, markets are pricing in a 75 basis point gain in September and even start pricing in a 100 basis point move.

Right now, any positive macro news is bad news for the market because of expectations of what the Fed will do in response, Gainesville Coins precious metals expert Everett Millman told Kitco News.

“The stronger the economy looks, the more leeway the Fed has to be more aggressive with rate hikes. For example, if jobs were in trouble, the Fed would be more likely to reverse rate hikes and slow or even to take a break. But any good economic news drives the dollar higher,” he said.

Millman also reminded investors that data sets are often revised in the coming months, which could happen with strong jobs data from July and even inflation data to come.

Next week’s data

Wednesday: CPI United States July

Thursday: US PPI July, Unemployment Insurance claims

Friday: Michigan Consumer Confidence August

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Eleanor C. William