- Gold rose as investors sought safety amid uncertainty regarding Trump’s looming policy changes.
- Job vacancies in the US increased to 8.10 million in November.
- The US ISM services PMI rose to 54.1, above estimates of 53.5.
Gold prices ended higher on Tuesday despite a strong dollar and Treasury yields. The rally came as investors sought safety amid uncertainty regarding Trump’s looming policy changes. Meanwhile, upbeat US data lowered expectations for Fed rate cuts in 2025.
Gold is considered a haven in times of uncertainty. As market participants await Trump’s swearing-in on January 20th, there is uncertainty about his proposed policy changes. This week, reports revealed that Trump’s administration might not be too aggressive in imposing import tariffs. The reports noted that the tariffs would only focus on critical critical sectors. However, Trump later came out to deny any such plans.
Experts have noted that the US economy will flourish under Trump, and inflation will heat up. Gold prices will suffer if this leads to a pause in Fed rate cuts. On the other hand, the yellow metal is considered a safe store of value when inflation rises. However, until it happens, everything remains speculation.
US job vacancies (Bureau of Labor Statistics)
Elsewhere, the dollar and Treasury yields rallied on Tuesday after better-than-expected economic data. The first report showed that job vacancies in the US increased to 8.10 million in November. This was a surprise since economists had expected a drop to 7.73 million. Solid labor demand will likely keep policymakers cautious.
Meanwhile, the ISM services PMI rose to 54.1, above estimates of 53.5. Business activity in the manufacturing and services sectors improved in December, indicating strong economic performance. The two reports led to a decline in Fed rate cut expectations. While policymakers projected 50-bps of cuts this year, markets are pricing 38-bps. This could mean only one rate cut this year.
Without other market factors, the outlook for gold would be dim since US interest rates will likely remain elevated for long. However, the risk of a Trump trade war, safe-haven demand, and central bank purchases will likely support prices.
Market participants expect more US data to give guidance on Fed rate cuts. The private employment report and the FOMC minutes later on Wednesday will likely contain policy clues. However, the market focus is on the upcoming US nonfarm payrolls report. This will show the state of job growth and unemployment in the country in December.
