Weekly Outlook: Will the Gold Rally Pause After Waller's Speech Ahead of the Nonfarm Payroll Report?

　　Written by: Jerry Chen, Senior Analyst at Gain Capital Group

　　Fed rate hike expectations rose significantly before the nonfarm payroll report—has the gold rally come to an end?

　　Last Friday at the Jackson Hole Symposium, Fed Chair Walsh stated that if there is no clear sign of cooling inflation, the Fed “still has work to do.” This is the strongest signal for a rate hike he has sent so far, and afterwards, the probability of a rate hike in September as priced by the interest rate market jumped from 40% to 60%.

　　The rise in rate hike expectations offset the optimism brought by Nvidia’s strong earnings. The three major U.S. stock indices only closed slightly higher last week. The dollar closed higher for the week, and gold plunged on Friday to $4,454, falling more than 3% for the week.

　　This week, attention will be on the U.S. nonfarm payroll report, changes in Fed rate outlook, Broadcom earnings, and central bank rate decisions from New Zealand and Canada, among other economic events.

　　l U.S. August Nonfarm Payrolls Report – Friday 20:30 (UTC+8)

　　The market generally expects an increase of 58,000 jobs, compared with a decrease of 23,000 last time; the unemployment rate is expected to remain at 4.1%. If the overall data comes in better than expected, the probability of a Fed rate hike in September may increase further, thereby continuing to boost the dollar. Conversely, if the data is poor and gives the Fed a reason to pause, it will favor gold and U.S. stocks.

　　Ahead of the nonfarm report, Tuesday’s JOLTS job openings, Wednesday’s ADP payroll change, and Thursday’s initial jobless claims will provide investors with some reference. In addition to labor data, the U.S. will also release August manufacturing and services PMI this week, with sub-indices such as prices and employment also showing current inflation pressures and labor market conditions.

　　In addition, Fed Governor Waller will be interviewed at 20:30 (UTC+8) on Thursday, and his comments on the rate outlook are also worth noting.

　　l U.S. Treasury Bond Market Intervention vs. Fed Rate Hike Expectations

　　Recent intervention by the U.S. Treasury avoided further increases in long-term Treasury yields, which are already at multi-decade highs, but “issuing short-term debt to increase long-term debt buyback” (“Operation Twist”) is at best a stopgap and cannot fundamentally resolve the current debt problem of the U.S.

　　Worse, Besant’s plan has not been echoed by the Fed. After Walsh made hawkish remarks last Friday, Fed rate hike expectations rebounded significantly, with another 1-2 hikes expected this year. This means short-term financing costs for the Treasury could continue to rise. If the debt structure cannot tilt toward the short end, long-term yields may rise simultaneously and the debt burden will worsen, which could impact economic fundamentals and risk assets in financial markets.

　　This week, the “ball” is once again in Besant’s court; watch for his latest statements on the U.S. debt issue during the G20 finance ministers’ and central bank governors’ meeting.

　　· U.S. Earnings Season Nears End—Focus on Broadcom Earnings

　　With Nvidia releasing its latest results and outlook last week, the second quarter U.S. earnings season is drawing to a close. According to LSEG, S&P 500 second-quarter earnings are expected to grow 34.5% year-on-year, far above the market’s expected 23%. This is a huge confidence boost for AI trades and U.S. stock performance in the second half of the year.

　　This Wednesday after the market close, Broadcom (AVGO) will release earnings. Whether it can provide guidance for the next fiscal year as Nvidia did last week will be the focus for investors. The share price of this $1.7 trillion semiconductor giant is up only 4% this year, temporarily supported by the 50-week moving average.

　　· New Zealand and Canada Rate Decisions

　　The Reserve Bank of New Zealand (Tuesday 10:00 UTC+8) is expected to hike rates by 25 basis points to 2.75%, and the market expects the terminal cash rate to rise further to 3%. With New Zealand's latest quarterly CPI at a two-year high, the key will be whether the central bank signals a peak in this hiking cycle above previous expectations. Hawkish phrasing could boost short-term NZD performance.

　　The Bank of Canada (Wednesday 21:45 UTC+8) is expected to stand pat this meeting, with markets expecting the next hike not until early next year. For CAD, dollar strength and U.S.-Canada tariff disputes are bigger bearish factors. This week’s USD/CAD may challenge the 1.4000 level.

　　XAUUSD Gold 4-Hour Chart

　　Due to the strong rebound in the dollar, gold fell 3% on Friday and continued its decline early Monday.

　　As shown on the chart, there is an oversold signal on the hourly timeframe but no clear bottoming pattern yet. Watch for initial support around 4,416, which is the 38.2% retracement of the July–August rally; if it continues to fall toward the 4,370–4,400 area, consider buying on dips.

　　However, gold prices are still in correction mode below 4,480–4,500 and caution is warranted; only a breakout above this level would confirm a trend reversal and attract more bulls.

Editor: Zhu Henan