- There is uncertainty about the timing of a Fed rate cut.
- There was a rise in weekly US jobless claims.
- Traders are awaiting Friday’s non-farm payroll data.
On Thursday, gold strengthened as the dollar weakened ahead of US non-farm payrolls data. Traders anticipated signs of a weaker labor market, increasing the likelihood of a Federal Reserve rate cut in March. Chris Gaffney, head of world markets at EverBank, warned that market expectations for interest rates had become too optimistic. He stated that the only threat to metals prices in the coming year would be if the Fed had to maintain higher rates for an extended period.
Earlier in the week, bullion reached a record high of $2,135.40 on expectations of a Fed cut but later dropped over $100 due to uncertainty about the timing of the cut. CME’s FedWatch Tool indicated a 62% chance of a rate cut by March, while a Reuters poll predicted unchanged rates until at least July. Lower interest rates typically support non-interest-bearing bullion.
Meanwhile, benchmark 10-year Treasury yields were close to three-month lows, and the US dollar fell 0.6%, making gold less expensive for traders with other currencies. Despite the potential for a gold rally, Everett Millman from Gainesville Coins suggested that gold would likely consolidate and test the new price levels.
Following a rise in weekly US jobless claims, traders awaited Friday’s non-farm payroll data for further indications of a weakening labor market.
US jobless claims (Source: US Labor Department)
The Labor Department’s Thursday report showed a moderate increase in Americans filing fresh claims for unemployment benefits. There is a gradual loss of momentum in the labor market as higher borrowing costs affect broader economic demand.
The report also revealed a decline in unemployment rolls in late November after continuing claims hit a two-year high earlier in the month. The mixed report aligned with economists’ views that the Fed was likely done raising interest rates. However, it suggested that market expectations of a cut in the first quarter were premature.
Christopher Rupkey from FWDBONDS in New York emphasized that there has been no significant deterioration in the labor market, compelling the Fed to shift quickly from rate hikes to rate cuts.
The market expects a soft landing in the US, historically making gold less attractive. However, the World Gold Council pointed out geopolitical tensions in a critical election year, and central bank buying could support gold in 2024.