- South Korea’s president declared and then reversed martial law.
- The French government faces a looming collapse.
- US jobless claims increased to 7.74 million, above estimates for a 7.51 million increase.
Gold prices rose on Tuesday and Wednesday amid safe-haven demand due to political uncertainty in South Korea and France. However, it eased slightly when the US released upbeat employment data in the previous session. Market participants now look forward to the crucial US nonfarm payrolls for clues on future Fed policy moves.
Gold (Source: Bloomberg)
Investors sought safety in the yellow metal as South Korea’s president declared then reversed martial law. This would mean a military government, opposed by many. As a result, lawmakers have presented a bill in parliament to impeach the president.
Meanwhile, the French government faces a looming collapse after lawmakers rejected the Prime Minister’s recent budget. Consequently, they presented a motion of no confidence in the PM, which could result in a government collapse.
All this political uncertainty sent some investors to dump risky assets and buy gold. However, data on Tuesday revealed that US jobless claims increased to 7.74 million, above estimates for a 7.51 million increase. This indicated robust labor market demand, boosting the dollar and Treasury yields. However, it had little impact on Fed rate cut expectations.
Market participants are now expecting more crucial data showing the health of the US labor sector. Economists believe the US nonfarm payrolls report will show an increase of 195,000 jobs in November. Meanwhile, the unemployment rate might edge higher to 4.2%.
A resilient labor market is bearish for gold as it reduces expectations for Fed rate cuts. On the other hand, weakness in the sector supports bullion due to increased rate-cut bets. Gold rises when US borrowing costs are low.
Currently, markets are pricing a 75% chance of a Fed rate cut in December. However, by the end of the week, this figure could change depending on data and policymaker remarks. Notably, Fed policymakers who have spoken this week support more rate cuts in the future. However, most were unwilling to predict the timing of rate cuts. Nevertheless, Fed’s Christopher Waller said that he supports another rate cut in December. Traders will now wait for Fed Chair Powell’s speech later in the day for more clues on rate cuts.
The near-term outlook for gold is slightly bright. However, markets expect a more gradual Fed in 2025, which could weigh on gold prices.
