Gold prices shake off disappointing ADP report, Trump lashes out at the Fed for being “Too Late”

NEW YORK (June 6) Gold prices are struggling to gain momentum following a dismal US ADP report, which showed that 37,000 jobs were added to the US private sector in May, significantly below the estimated number of 115,000. 

In response to the disappointing data, US President Trump posted on Truth Social, pressuring the Federal Reserve (Fed) to cut rates. 

With Trump’s remarks stating that the Fed Chair remains “Too Late” to cut rates, markets appear to remain focused on Friday’s Nonfarm Payrolls (NFP) report.

ADP data increases doubts over the resiliency of the US labour market ahead of Friday's NFP report

The report, released by the ADP Research Institute on a monthly basis, is perceived as a leading indicator by many economists, which is released two days before the NFP report. Although Gold prices remained broadly stable on Wednesday, doubts over a US-China trade deal continued to grow, given recent comments from US President Donald Trump.

Trump said on Wednesday that it was “extremely hard” to make a trade deal with Chinese President Xi Jinping, CNBC reports. The comments arise as Washington has fuelled speculation that a call between the two leaders could happen this week.

“I like President XI of China, always have, and always will, but he is VERY TOUGH, AND EXTREMELY HARD TO MAKE A DEAL WITH!!!” Trump wrote on Truth Social.

Chinese Foreign Ministry spokesman, Lin Jian, replied, stating that “China’s principle and position of developing China-US relations is consistent,” Bloomberg reports. The comments suggest that China hasn’t changed its stance since meeting with US representatives last month.

Prospects of a weak trade deal with China, or even no deal, generally benefit safe-haven assets such as Gold.

US 50% tariffs on steel and aluminium are in force

With a 50% tariff rate now in place for aluminum and steel imports into the United States (US), trade relations between the US and its global counterparts remain strained. This provides an additional tailwind for Gold prices and a headwind for major risk assets.

Following positive trade talks between the United States (US) and China in mid-May, which helped ease tensions between the world's two largest economies, the negotiations appear to have stalled.

With both parties accusing each other of violating the agreement reached in Geneva on May 12, uncertainty surrounding trade relations remains a key driver of Gold prices.

However, Gold’s nemesis appears to be the interest-rate trajectory for global central banks, which are preparing to announce the next round of rate decisions this week. Since investors holding Gold bars or coins do not yield any returns from holding these assets, interest rates are seen as a threat, especially when banks offer higher rates.

Gold daily digest: China, tariffs, and employment data back in focus

• The Geneva deal had established a 90-day pause on escalating tariffs between China and the US, with the US reducing tariffs on Chinese goods from 145% to 30%, and China lowering tariffs from 125% to 10%. The agreement also included provisions for China to lift restrictions on the export of critical minerals essential to US industries.
• With the European Central Bank (ECB) gearing up for Thursday's interest rate decision, the release of the Purchasing Managers' Index (PMI) throughout the morning has provided a mixed picture of the health of the manufacturing and services sectors across the Eurozone. The combination of clear signs of an economic slowdown and slowing inflation is perceived as a warning sign of a potential recession, with spending and demand for goods and services expected to fall.
• For the ECB, inflation data released Tuesday supported market expectations of an additional 25 basis points (bps) rate cut on Thursday.
• Although PMI data from Italy and France came in above estimates, Germany’s data continued to underperform, suggesting that business confidence and the country’s growth outlook remain gloomy. Since Germany is the largest economy in the Eurozone, diminishing growth forecasts place additional pressure on the ECB to provide support to the European economy by continuing to cut interest rates.
• As for the Fed, the CME FedWatch Tool continues to show a 55.6% probability of the US central bank announcing a rate cut in September. A downside surprise in the ADP number may provide temporary relief for Gold as it would increase the chances that the Fed cuts rates in July. For now, the probabilities of such moves aren’t significant.

FXStreet