Gold was backed by lower dollar and Treasury yields on Thursday. However, prices remained in a narrow range as investors awaited US nonfarm payrolls data, which could affect the Federal Reserve’s rate hike strategy. Analysts interpret the markets and share their forecasts.
“Weak US NFP data paves the way for gold”
Spot gold was trading at $1,721.30, up 0.3% at the time of writing. U.S. gold futures rose 0.7% to $1,731.90. Benchmark US 10-year Treasury yields posted their biggest one-day gain since Sept. 26 on Wednesday. However, it later eased and the dollar index (DXY) fell 0.1% as a result. DailyFX analyst Thomas Westwater comments:
Weaker-than-expected nonfarm payroll data is likely to limit the pace of Fed tightening. This allays market fears. It also reduces the safe-haven strength of the dollar, paving the way for higher gold.
“This has to happen for a bullish boom in the price of gold”
cryptocoin.com As you follow, the ADP National Employment report released on Wednesday sounded strong. The ADP report showed private employment increased by 208,000 jobs last month. Non-manufacturing PMI data from the Supply Management Institute came in slightly above expectations. This showed that it is the main force in the economy despite rising interest rates. On Friday, the US Department of Labor will release more comprehensive nonfarm payrolls data.
Wednesday’s upbeat data and hawkish comments from San Francisco Federal Reserve Chairman Mary Daly dampened hopes for a policy axis. Edward Moya, senior analyst at OANDA, highlights the following in a note:
Gold needs to see a sharper slowdown and cooler prices in the US for a bullish boom to occur. Gold looks set to consolidate between $1,680 and $1,740 until we get both the NFP report and the latest inflation data.
“This is likely to be disappointing for the gold market”
Meanwhile, as an indicator of sentiment, the assets of the SPDR Gold Trust exchange-traded fund marked the third consecutive day of entry on Wednesday. High Ridge Future metal trade director David Meger comments:
We are seeing a revival in the dollar and yields. As a result, there has been a pullback below after a rather aggressive uptrend in the last few sessions. The Fed is currently very focused on the job market. We’ve seen little hints of slowdown in production. However, if we see a better-than-expected employment figure, it is likely to be disappointing for the gold market.
“Needs another helping hand to build on this”
Gold has risen sharply in the last few sessions. Precious metals analysts think that this upward movement is now losing its strength. It also says it needs lower Treasury yields and a softer dollar to keep going. Craig Erlam, senior market analyst at OANDA, puts it this way:
We have seen a strong rebound in the gold price over the past few days. But building on that needs another helping hand. That will likely need the help of lower US yields and a softer dollar, which will largely depend on incoming data, particularly Friday’s jobs report.
“This is the main reason behind the decline in gold prices!”
GraniteShares Portfolio Manager Jeff Klearman, who manages GraniteShares Gold Trust, says the driving force behind the decline in gold prices after highs in the first quarter of this year is “mainly the Fed’s aggressive tightening policy.” In this context, the analyst makes the following statement:
The Fed has been tough. It increased rates at an almost unprecedented rate. In other words, he insisted on giving the message of fighting inflation with a hawkish stance. As a result, the US dollar soared to 20-year highs. US interest rates have reached levels not seen in almost a decade and a half. This caused gold prices to drop significantly. Year-to-date gold futures are trading less than 6%.
However, the dynamic has changed recently, with both the BoE and the ECB increasing their “fighting inflation rhetoric”. In historically high clips, or for the first time, they’ve raised interest rates even higher. Klearman says the actions are starting to ease the upside pressure on the US dollar. He also notes that this means a rise for gold prices.
“Precious metal remains under pressure”
Daniel Hynes, senior commodity strategist at ANZ, evaluates the developments in the market as follows:
Gold climbed above $1,700 for the first time in nearly four weeks as sentiment continues to rise. The precious metal came under pressure as tight monetary policy and a stronger USD put pressure on investor demand. Further softening of the labor market will be required for this rally to continue. That puts a huge emphasis on U.S. nonfarm payrolls this week for any clues to the future course of central bank monetary policy.
