Gold’s Recovery Following US Jobless Claims Data Release
Gold (XAU/USD) has rebounded to trade back in the $2,640 range on Friday following the release of subpar United States (US) jobs data. This development has solidified expectations that the Federal Reserve (Fed) will cut interest rates at their upcoming November policy meeting. The anticipation of a rate cut is considered bullish for Gold, as it would reduce the opportunity cost of holding the non-interest-paying asset, making it more appealing to investors.
Market Impact of US Jobless Claims Data
- Gold rebounded from just above the key $2,600 psychological level on Thursday after official US Jobless Claims data revealed a surprising increase in the number of people claiming unemployment benefits.
- US Treasury yields dipped, the US Dollar (USD) marginally weakened, and Gold received a boost as a result of the data release.
- Initial Jobless Claims for the week ending October 4 rose by 258K, exceeding expectations and indicating weakness in the job market.
- Continuing Claims for the previous week also showed an increase, further highlighting the challenges in the employment sector.
Fed’s Potential Response and Market Expectations
The weak job data is likely to keep the Fed on track to cut interest rates in November to stimulate borrowing and job creation. Fed Chairman Jerome Powell’s focus on “full employment” signals a shift from inflation concerns.
- Market-based probability suggests a 89% chance of a 25 bps rate cut in November, up from 85% before the latest data release.
- The probability of no change in interest rates has decreased to 11% from 15%.
- Higher-than-expected inflation data did not deter expectations of a rate cut, as the Fed’s priority on employment took precedence.
Other Influencing Factors on Gold
- Gold has also benefited from dovish comments by Fed policymakers, indicating a supportive stance on monetary policy.
- Geopolitical tensions, such as Israel’s actions in Lebanon, have contributed to Gold attracting safe-haven flows.
Technical Analysis: Gold’s Range-Bound Movement
Gold has reversed its short-term downtrend and returned to its familiar range above $2,625 after testing the $2,600 level.
XAU/USD 4-hour Chart
The technical analysis suggests a sideways trend in the near term, with a potential upward movement towards $2,670 if Gold breaks above $2,653. The medium and long-term trends remain bullish, indicating the possibility of higher highs in the future.
Insights into Gold
Gold FAQs
- Gold serves as a safe-haven asset during turbulent times, a hedge against inflation, and a store of value.
- Central banks hold significant Gold reserves to support their currencies and improve economic strength.
- Gold has an inverse correlation with the US Dollar, US Treasuries, and risk assets, making it a diversification option for investors.
- Various factors, including geopolitical instability and interest rate movements, can impact the price of Gold.
Overall, the latest developments in the job market, Fed’s stance on interest rates, and external factors like geopolitical tensions have influenced Gold’s recent performance. Understanding these dynamics can provide valuable insights for investors looking to navigate the precious metal market.