Fundamental Analysis

Gold Heading for a Third Week of Gains, Eying US NFP Report

  • Higher-than-expected employment gains may put pressure on Gold.
  • James Bullard suggested that 2023 might eventually usher in some inflation relief.
  • The number of Americans submitting new claims for unemployment benefits decreased to a three-month low last week.

Gold prices pulled back slightly on Friday but were on course for a third consecutive weekly rise. Investors eagerly anticipated the crucial US employment report to determine the Federal Reserve’s stance on rate hikes.

According to IG Market strategist Yeap Jun Rong, higher-than-expected employment gains and more sustained wage pressures might hurt gold prices.

“Since November, gold prices have risen as optimistic bets on the dollar and yields unravel. Gold prices might continue to attract purchasers in 2023, but there is a chance that hawkish officials will push back,” he added.

A few Fed officials on Thursday reaffirmed their effort to bring inflation back to its 2% target. James Bullard, the president of the St. Louis Fed, suggested that 2023 might eventually usher in some inflation relief.

Bullard expressed his growing confidence that the Fed can cut inflation without causing the economy to enter a recession, as many Fed critics and analysts now predict will occur.

The official noted that many businesses are still hiring and predicted that “the labor market can remain quite resilient throughout 2023.”

Because of the robust employment situation, Bullard declared that now was an excellent time to battle inflation.

He claimed that although the economy was not being held back by monetary policy, it soon would be.

The anti-inflationary attractiveness of bullion is diminished when interest rates rise, and holding the non-yielding commodity has a higher opportunity cost.

US jobless claims (Source: Refinitiv DataStream)

According to data released on Thursday, the number of Americans submitting new claims for unemployment benefits dropped to a three-month low last week, indicating a still-tight labor market that could force the Fed to keep raising interest rates. Private payroll growth in the United States also exceeded expectations in December.

The minutes of the Fed’s policy meeting on December 13–14, released on Wednesday, revealed policymakers highlighted that the labor market remained “extremely tight.” Some noted that some business contacts suggested they would be inclined to retain workers despite decreasing output demand because of their recent experiences with labor shortages and hiring issues.

According to Edward Moya, senior analyst with OANDA,” a labor market downturn is around the corner, and until it happens, gold might remain trapped above the $1,800 level.”