- Gold rebounds 0.69% despite significant job additions in the US, defying the Fed’s rate cut path.
- Gold recovers from post-jobs report slide as investors weigh Fed’s cautious stance on disinflation.
- Upcoming US inflation and retail sales data will influence the path of gold and Fed policy.
The price of gold rebounded from daily lows on Friday, extending its rally for a fourth straight day as traders shrugged off a strong United States (US) Nonfarm Payrolls report. This moderated the Federal Reserve’s (Fed) concerns about the labor market, but not so much about inflation, as some officials acknowledged. XAU/USD is trading at $2,687, up 0.69%.
Bullion fell sharply after the US Bureau of Labor Statistics (BLS) revealed that the economy added an outstanding number of people to the workforce, surpassing 200,000. As a result, the unemployment rate fell, while investors valued less interest rate cuts based on the fact that the economy continues to create enough jobs, while the disinflation process “has stopped,” according to the latest Fed minutes. .
However, XAU/USD recovered once market participants digested the data. The data reassured Fed officials that the labor market remains healthy as they address inflation, which recently rose after the U.S. central bank cut rates by 100 basis points in 2024.
The US Dollar rose sharply to multi-month highs according to the DXY Dollar Index. The DXY hit 109.96 before paring gains and is at 109.68, up 0.49%. US Treasury yields spiked but stabilized, particularly in the middle of the curve.
Chicago Fed President Austan Goolsbee said they are not complaining because the economy has created more than 250,000 jobs. He added that the labor market appears stable “at full employment,” adding that if conditions are stable and there is no increase in inflation, “rates should go down.”
Given the context, investors’ attention will shift to next week’s data. The US calendar will include inflation figures from producers and consumers, along with retail sales and jobless claims for the week ending January 11.
Market drivers: The price of gold rises accompanied by the US dollar
- The price of gold dismisses the higher real yields in the US, which rose two basis points to 2.30%. At the same time, the yield on the US 10-year Treasury bond soared seven and a half basis points to 4.767%.
- The US Bureau of Labor Statistics (BLS) revealed that the economy created 256,000 jobs last month, although November was revised downward from 227,000 to 212,000. The consensus projected that 160,000 people would be added to the workforce, with private hires totaling 223,000.
- The unemployment rate fell to 4.1%, while average hourly earnings (AHE) decreased from 4% to 3.9%. Following the data release, traders expect the Federal Reserve to cut rates just once in 2025.
- Expectations of Fed easing continued to decline. The December Fed funds futures contract is pricing in 30 basis point easing.
- US Consumer Sentiment in January announced by the University of Michigan (UoM) missed estimates of 73.8 and fell to 73.2. One-year inflation expectations increased from 2.8% to 3.3% and for a five-year period they increased from 3% to 3.3%.
- On Thursday, Fed Governor Michelle Bowman maintained a hawkish stance, saying the central bank should be cautious in adjusting interest rates, while the Kansas City Fed’s Jeffrey Schmid added that rates are “close.” to be neutral.
- Earlier, the Philadelphia Fed’s Patrick Harker revealed the US central bank could pause amid uncertainty, while the Boston Fed’s Susan Collins said the current outlook suggests a gradual approach to rate cuts. .
XAU/USD Technical Outlook: Gold Price Soars Above $2,650 as Bulls Intervene
Gold’s bullish trend continues as the yellow metal has marked a successive series of higher highs and higher lows, with traders targeting the $2,700 mark. Momentum is heavily tilted to the upside as seen in the Relative Strength Index (RSI) indicator, which shows that the bulls are in charge.
If XAU/USD breaks above $2,700, the next resistance would be the December 12 high of $2,726 and the all-time high (ATH) at $2,790.
Conversely, a drop below $2,650 will put a challenge to the 50-day and 100-day simple moving averages (SMA) at $2,645 and $2,632 respectively. In case of further weakness, $2,600 is the next level, ahead of the 200-day SMA at $2,503.
Gold FAQs
Gold has played a fundamental role in human history, as it has been widely used as a store of value and medium of exchange. Today, apart from its brilliance and use for jewelry, the precious metal is considered a safe haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation, since it does not depend on any specific issuer or government.
Central banks are the largest holders of Gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase since records exist. Central banks in emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
The price of Gold can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
