Gold’s price made a notable recovery on Friday, bouncing back from earlier losses in the day and continuing a four-day winning streak. This happened despite a robust Nonfarm Payrolls report from the United States, which initially sparked concerns about the Federal Reserve’s easing plans. Yet, with the price at $2,687, marking a 0.69% rise against the US Dollar (XAU/USD), traders seemed to downplay these worries.
The report from the US Bureau of Labor Statistics indicated that the job market was booming with over 200,000 positions added. This development led to a dip in the unemployment rate and caused investors to reassess the likelihood of multiple rate cuts by the Fed. It appears the economy is still generating sufficient employment, despite the Fed suggesting that disinflation had hit a pause, according to its latest minutes.
However, once the markets had time to process this information, gold prices regained some ground. Investors were reassured by the continued strength of the labor market, even as the Fed tackled rising inflation. Inflation has ticked upwards after the Fed cut rates by a substantial 100 basis points in 2024.
The US Dollar surged to levels not seen in several months, with the Dollar Index (DXY) peaking at 109.96 before settling at 109.68, up by 0.49%. Meanwhile, US Treasury yields saw a sharp rise but eventually leveled off, especially in the intermediate maturities.
Chicago Fed President Austan Goolsbee expressed satisfaction with the economy’s creation of over 250,000 jobs, indicating that the labor market is robustly "at full employment." He noted that if economic conditions remain stable and inflation doesn’t climb, there could be grounds for lowering rates.
In light of this scenario, all eyes will be on upcoming reports next week. Key data points include US inflation rates on both the producer and consumer fronts, alongside retail sales and jobless claims for the week ending January 11.
Daily Digest of Market Movers: Gold Prices Ride High Alongside the US Dollar
Gold has been unfazed by the rise in US real yields, which increased by two basis points to 2.30%. Concurrently, the yield on the US 10-year Treasury note jumped seven and a half basis points to 4.767%. The US Bureau of Labor Statistics revised past job numbers, showing the creation of 256,000 jobs in December, with a downward adjustment for November from 227,000 to 212,000. This surpassed expectations, which estimated an increase of 160,000 and noted 223,000 in private sector hiring. The unemployment rate improved to 4.1%, and average hourly earnings slightly decreased from 4% to 3.9%. Following these updates, traders now forecast just one rate cut by the Federal Reserve in 2025. Expectations for easing by the Fed have continued to decrease, with the December Fed funds futures contract anticipating a 30 basis-point reduction. Consumer sentiment, as evaluated by the University of Michigan (UoM), fell short of predictions at 73.8, sliding to 73.2. Meanwhile, inflation expectations rose over one year from 2.8% to 3.3% and over five years from 3% to 3.3%. However, Fed officials like Michelle Bowman and Jeffrey Schmid have maintained a cautious stance on adjusting rates, citing a "near-neutral" position.
Earlier comments from Patrick Harker of the Philadelphia Fed indicated a willingness to pause amid uncertainty, and Susan Collins from the Boston Fed suggested a gradual path towards rate cuts.
Technical Outlook for XAU/USD: Gold Surpasses $2,650 as Bulls Take Charge
Gold continues to trend upward, marking a consistent pattern of higher highs and higher lows. Traders are setting their sights on the next milestone at $2,700. The current momentum leans strongly in favor of the bulls, as highlighted by the Relative Strength Index (RSI), which supports a bullish outlook.
If the gold price surpasses the $2,700 level, it will encounter resistance at the December 12 high of $2,726 and could potentially reach the all-time high of $2,790. On the downside, if gold falls below $2,650, it could test the 50 and 100-day Simple Moving Averages (SMAs) positioned at $2,645 and $2,632, respectively. Further weakness could see it heading towards $2,600, with the 200-day SMA at $2,503 acting as another support level.
Gold FAQs
Gold’s historical significance stems from its extensive use as both a store of value and a medium of exchange. Beyond its brilliant appearance and role in jewelry making, gold serves as a safe-haven asset, perceived as a prudent investment during economic turbulence. It acts as a hedge against both inflation and currency depreciation, being independent of any specific issuer or government.
Central banks stand as the largest gold custodians. They often bolster their reserves with gold to fortify their economies and currency stability, especially in crisis times. High gold reserves can signify trust in a nation’s financial health. In 2022, central banks acquired an unprecedented 1,136 tonnes of gold, valued at around $70 billion, according to the World Gold Council. Emerging economies like China, India, and Turkey have been particularly proactive in expanding their reserves.
Gold typically shows an inverse relationship with the US Dollar and US Treasuries, both of which are significant reserve and safe-haven assets. When the Dollar weakens, gold tends to appreciate, allowing investors and central banks to safeguard assets during unstable times. Conversely, gold often underperforms when stock markets rally, while turmoil in riskier markets can boost its price.
Many factors can influence the price of gold, such as geopolitical tensions or the threat of a severe recession, which can drive up its value due to its safe-haven status. Being a non-yielding asset, gold generally benefits from lower interest rates but takes a hit when borrowing costs rise. Nonetheless, its movements largely depend on the US Dollar’s behavior, given gold is priced in dollars (XAU/USD). A strong Dollar often suppresses gold prices, while a weaker Dollar tends to elevate them.
