- Gold hit a two-week low in the previous session.
- The US economy added a bigger-than-expected 254,000 workers in September.
- The FOMC meeting minutes might contain clues on future rate cuts.
Gold prices fell more than 1% on Tuesday and maintained the downward trajectory on Wednesday due to a decline in Fed rate cut expectations. Moreover, prices dropped due to worries about poor growth in China in Q4.
Gold (Source: Bloomberg)
Gold hit a two-week low in the previous session as market participants priced in a smaller Fed rate cut in September. Prices have fallen since Friday last week, when the US released a blockbuster employment report. The economy added a bigger-than-expected 254,000 workers while the unemployment rate eased to 4.1%.
Before the data, all focus was on the next Fed meeting in November. Markets were pricing another 50-bps rate cut in November, which propelled gold higher. An aggressive Fed is bullish for the yellow metal, which thrives in a low interest rate environment. Meanwhile, the upbeat employment figures suggested a smaller rate cut in November, putting pressure on gold.
Nevertheless, bullion has had a strong year, gaining over 25% due to expectations for lower borrowing costs. Furthermore, the Fed has just started cutting rates, meaning more will come. Therefore, the outlook will remain bright if data continues supporting further rate cuts.
Although China has made efforts to support the fragile economy, experts still doubt it will have a significant impact. As a result, there are concerns about growth in the fourth quarter. China is the largest consumer of gold. Therefore, weak consumption can weigh on prices.
Meanwhile, investors are still monitoring developments in the Middle East. Geopolitical tensions increase demand for gold, which is considered a safe haven. In recent weeks, the war between Israel and Hezbollah has intensified. At the same time, Iran made a bold attack on Israel, sending over 200 missiles. After that, there was calm as markets waited for Israel’s response. The calm before a possible storm has allowed gold to retreat from recent peaks.
Traders will peruse the FOMC meeting minutes later on Wednesday for clues on future rate cuts. Dovish minutes will boost gold, while a slightly hawkish tone could extend the current decline.
Furthermore, markets are bracing for the US consumer inflation report, due on Thursday. A jump in inflation would weigh on prices as it would weaken rate-cut expectations. On the other hand, softer-than-expected figures would increase Fed rate cut bets, boosting gold.
