- Gold prices benefit from softer-than-expected US labor market data.
- Job growth was expected to slow in October due to the United Auto Workers strike.
- Geopolitical tensions, neutral Fed rates and a subdued US NFP report would keep the gold price outlook bullish.
Gold price (XAU/USD) brings consolidation breakout as United States The Bureau of Labor Statistics (BLS) reported that job growth slowed in October. Nonfarm Payrolls (NFP) were lower at 150,000 than expectations of 180,000 and 297,000 September payrolls were revised down. Economists had expected slower job growth in October as at least 30,000 United Auto Workers (UAW) union workers went on strike against Detroit’s “Big Three” automakers. The unemployment rate rose to 3.9%, up from expectations and the previous release of 3.8%.
In addition to the headline job growth figure, average hourly earnings, which provide a guide to consumer spending and inflation, rose at a slower pace of 0.2% in October than consensus and an earlier reading of 0.3% on a monthly basis. Annual data on average hourly earnings gained at a faster pace of 4.1% compared to expectations of 4.0% growth, but remained below the original figure of 4.2%. Subdued labor force growth and sluggish wage gains dampened bets on another interest rate hike from 1 Fed.
Short-term demand for gold strengthened further due to ongoing geopolitical tensions in the Middle East and expectations that the Federal Reserve (Fed) will keep interest rates higher for a significantly longer period and slow job growth in October.
Daily Digest Market Movers: Gold price follows weak US data
- Gold price rose above the $2,000 psychological resistance following the release of a muted US NFP report.
- The precious metal is expected to significantly extend gains amid numerous tailwinds such as weak labor demand and deepening Israeli-Palestinian tensions.
- Short-term demand for precious metals appears upbeat as investors hope the Federal Reserve left interest rates unchanged in the 5.25% to 5.50% range on Wednesday for the second straight time.
- However, Fed Chairman Jerome Powell kept expectations of another rate hike alive as strong retail demand and favorable labor market conditions could keep inflationary pressures sustained.
- The US dollar index (DXY) found intermediate support near 106.00 as investors were cautious ahead of labor market data. U.S. 10-year Treasury yields rebounded to near 4.67% but remain on the back foot on expectations that the Fed has ended its rate-tightening campaign.
- According to CME’s Fedwatch tool, more than 80% of traders are betting that monetary policy will remain unchanged for the rest of the year.
- Escalating tensions in the Middle East keep gold appeal positive. The Israeli army has surrounded Gaza and is ready for a ground attack.
- US Secretary of State Antony Blinken traveled to Israel to negotiate a temporary pause in a planned ground invasion by Israeli troops to confirm the safe dispatch of humanitarian aid and help with hostage negotiations.
- Meanwhile, the US Institute of Supply Management (ISM) services PMI for October fell more than expected.
- The services PMI, which measures activity in the U.S. services sector — a sector that makes up two-thirds of the U.S. economy — fell to 51.8, down from expectations of 53.0 and 53.6 in September. Conversely, new orders for the services sector rose sharply to 55.5 from an earlier release of 51.8.
Technical analysis: The price of gold is expected to stabilize above USD 2000
The price of gold is trying to break the consolidation in the $1,975-1,990 range to the psychological resistance of $2,000.00 after the release of US labor market data. Volatile action in gold was widely expected following the release of US labor market data.
More broadly, gold is trending bullish as the 20-day and 50-day exponential moving averages (EMA) are trending higher. Momentum indicators are also oscillating in a bullish zone, indicating the strength of the upward momentum.
Frequently asked questions about employment
Labor market conditions are a key element in assessing the health of the economy, and therefore a key factor in currency valuation. High employment or low unemployment has positive effects on consumer spending and thus on economic growth and increases the value of the local currency. In addition, a very tight labor market – a situation where there is a shortage of workers to fill open positions – can also impact the level of inflation and thus monetary policy, as low labor supply and high demand lead to higher wages.
The pace at which wages are growing in the economy is key for policymakers. High wage growth means households have more money to spend, which usually leads to higher prices of consumer goods. Unlike more volatile sources of inflation such as energy prices, wage growth is seen as a key component of core and persistent inflation, as wage increases are unlikely to reverse. Central banks around the world pay close attention to wage growth data when making monetary policy decisions.
The weight each central bank attaches to labor market conditions depends on its objectives. Some central banks have explicit labor market mandates beyond controlling inflation levels. The US Federal Reserve System (Fed), for example, has a dual mandate to promote maximum employment and stable prices. Meanwhile, the sole mandate of the European Central Bank (ECB) is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important consideration for policymakers because of their importance as a measure of the health of the economy and their direct relationship to inflation.
