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Will September Non-Farm Payrolls Act As A Friend Or An Enemy To Gold? -

Oct, 06th 12:52

Gold nudged lower on Thursday, extending its slide into an eighth straight session as  better-than-expected economic data in the U.S and higher oil prices have fueled the possibility of a Fed rate hike later this year and taken the shine off non-interest bearing assets like gold.

Gold has pared some of its losses in early European trading but the recovery is expected to be short-lived as markets have already turned their attention to the monthly U.S. payrolls report on Friday. The median forecast from economists is calling for an increase of 175,000. Strong jobs data which has been considered a sign of a strengthening economy will cement the case for a rate increase, especially after a spate of positive reports released recently.

The manufacturing and service sectors of the U.S economy have both indicated considerable improvement in the latest reports. As stated by the Institute for Supply Management (ISM) on Monday, the index of national factory activity swung back into expansion territory after surprisingly falling below 50 in August. Meanwhile, the service index published by the ISM on Wednesday shot up to the highest reading in 11 months at 57.1 in September from 51.4 in August.


Coupled with a good run in U.S data, the rally in oil prices is helping buoy expectations regarding inflation in the world’s largest economy. In the latest update on the global economy, the International Monetary Fund forecast U.S. consumer price inflation would accelerate at a pace greater than the Federal Reserve’s projection. While the Fed stated that the personal consumption expenditure index(the central bank’s favorite measure of inflation) would not hit the 2% target until 2018, the IMF said that this index could reach 2.3% as early as next year.

Expectations that the Fed shall raise rates are increasing, and drawing investor attention away from dollar-denominated gold. Markets are currently pricing in only a 15.5% probability for interest rates to go up in November, but predicting a 60% chance that a change can happen in December, according to the CME Fed Watch Tool.


Fig: GOLD D1 Technical Chart

Gold collapsed on Tuesday, posting the biggest one-day loss since early June. After breaking through the support at 1305.00 from above, the slide triggered sell stop orders set below the 1300.00 level and directly sent the market into the oversold zone for the first time since November 2015. As can be seen from the ADX chart, the bearish momentum has weakened. Restrained by cautious sentiment in the market, gold is expected to trade in a thin range until the news coming out tomorrow.

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