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Gold price remains at seven-month low as Fed officials support more rate hikes

  • Gold price moves sideways after a long sell-off ahead of US ADP employment data.
  • Job openings at U.S. companies were higher than expected in August, reflecting strong demand for labor.
  • Fed member Loretta Mester supports raising interest rates in November.

The price of Gold (XAU/USD) remains directionless as investors focus on US labor market data, which will set the tone for the Federal Reserve’s (Fed) monetary policy in November. The overall outlook for precious metals is bearish, as Fed officials continue to favor further tightening due to the resilience of the economic outlook.

US Dollar extends recovery above 107.20 despite encouraging job vacancies data. Higher-than-expected job openings at U.S. employers indicate strong demand for labor. In addition to the ADP employment data, investors will also focus on the US ISM Services PMI, which will provide guidance on the demand outlook.

Daily summary of market drivers: Gold price awaiting labor market data

  • The price of Gold is moving around $1,820, while investors await the ADP employment data and the Institute of Supply Management (ISM) services Purchasing Managers Index (PMI) for September, which will be published at 12:15 GMT and 14:00 GMT, respectively.
  • Investors expect private payrolls to hit 156,000, which is down from August’s reading of 177,000. A decline in job growth could provide some relief to the price of Gold.
  • The US ISM is expected to report September services PMI at 53.6, down from August’s reading of 54.5. The services PMI data has a significant impact on the Dollar Index, as it represents the services sector, which represents two-thirds of the US economy.
  • On Tuesday, the precious metal attempted to rally near 1,820S but failed to capitalize due to hawkish interest rate guidance from Federal Reserve policymakers and upbeat opening data. JOLTS employment.
  • The U.S. Bureau of Labor Statistics reported that job openings stood at 9.61 million, compared to expectations of 8.8 million. Rising job openings from U.S. employers mean demand for labor is healthy.
  • On Tuesday, Cleveland Fed President Loretta Mester reiterated her hawkish stance on the outlook for interest rates. Mester expressed her willingness to raise interest rates further at the November policy meeting if the economy continues to hold up as it has so far. She acknowledged that expensive long-term Treasury yields could change the outlook for monetary policy.
  • On Monday, Loretta Mester said that interest rates need to be raised further this year and that they need to stay high for longer.
  • Contrary to Mester, Atlanta Fed President Raphael Bostic stated that “there is no urgency for the Federal Reserve to raise interest rates further,” but that interest rates must remain high for longer before a rate cut. .
  • Regarding rate cuts and inflation prospects, Raphael Bostic stated that a rate cut could be announced by the end of 2024 and that core inflation would drop to 2% by the end of 2025.
  • The dollar faces some selling pressure after refreshing its 11-month high near 107.20, as investors turned cautious about labor market data, which will set the tone for the interest rate outlook.
  • The overall outlook for the Dollar is positive as the US economy is resilient, unlike other economies that are struggling to cope with the consequences of rising interest rates by central banks. The 10-year US Treasury yield jumped to a multi-year high of 4.85%.
  • US Treasury Secretary Janet Yellen remained optimistic about the economic outlook, adding that inflation is declining in the near term and the labor market is extremely strong.

Technical Analysis: Gold price remains sideways near $1,820

Gold price is struggling to find direction, trading near $1,820 following an intense sell-off, as investors focus on US labor market data for further guidance. The precious metal remains in bearish territory and further declines are expected as the 50-day and 200-day exponential moving averages (EMA) are about to cross. The yellow metal is expected to find a cushion near the crucial support around $1,800.

Employment FAQs

How do employment levels affect currencies?

Labor market conditions are a key element in assessing the health of an economy and, therefore, a key factor in the valuation of currencies. A high level of employment, or a low level of unemployment, has positive implications for consumer spending and therefore economic growth, boosting the value of the local currency. Furthermore, a very tense labor market – a situation in which there is a shortage of workers to fill vacant positions – can also have implications for inflation levels and, therefore, for monetary policy, since a low labor supply and high demand lead to higher wages.

Why is wage growth important?

The pace at which wages grow in an economy is key for policymakers. High wage growth means households have more money to spend, which often translates into higher prices for consumer goods. Unlike other more volatile sources of inflation, such as energy prices, wage growth is considered a key component of underlying and persistent inflation, as wage increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding their monetary policy.

How much do central banks care about jobs?

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have labor market-related mandates that go beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and price stability. Meanwhile, the only mandate of the European Central Bank (ECB) is to keep inflation under control. Even so, and despite the mandates they have, labor market conditions are an important factor for policy makers given their importance as an indicator of the health of the economy and their direct relationship with inflation.

Source: Fx Street

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