Fundamental Analysis

Gold (GC) Futures Forecast: Gold Gaining Ground on Poor US Labor Market Data

  • Initial jobless claims in the US exceed expectations pointing to a cooling labor market.
  • Economists expect the US labor market to deteriorate amid higher interest rates.
  • The Fed will only pause when the labor market cools significantly.

Gold (GC) Futures prices continue to rise steadily following the disappointment in recent labor market data. The number of people registered for unemployment benefits for the first time last week exceeded expectations, marking a significant increase from the previous week’s six-month low. On Thursday, the US Labor Department said weekly unemployment claims increased by 29,000 to 219,000.

The labor market has been exhibiting some very conflicting signs this past week. The private sector payroll processor ADP reported on Wednesday that 208,000 new jobs were generated in the private sector in September, slightly exceeding estimates. However, the JOLTS survey of the Labor Department revealed on Tuesday that there were fewer job opportunities in August than in July. It was the largest decline since The COVID-19 pandemic’s impact on the world economy in April 2020

Although the US job market has been somewhat resilient through 2020, many economists believe that as the Federal Reserve keeps raising interest rates aggressively, it is only a matter of time before it begins to deteriorate. Such an occurrence could favor gold prices as it would mean a less aggressive Fed. According to the Federal Reserve, the labor market must be cooled to reduce inflation to 2%.

There was likely a slowdown in US job growth in September due to businesses becoming more worried about the future state of the economy. However, overall labor market conditions are still tight, giving the Federal Reserve the justification to continue its aggressive campaign to tighten monetary policy.

Monthly changes in payroll (Source: Bureau of Labor Statistics)
Monthly changes in payroll (Source: Bureau of Labor Statistics)

From 2010 to 2019, the US added an average of 183,000 payroll jobs a month. The current pace remains well above that, showing payroll growth remains strong.

Next Thursday’s consumer pricing report will aid decision-makers in evaluating their success in the fight against inflation in advance of their policy meeting on November 1-2. According to CME’s FedWatch Tool, financial markets are almost certain of a fourth rate increase of 75 basis points at that meeting. A poor jobs report, and inflation reading will only support the gold rebound. However, we could see gold bears returning if the labor market remains tight.