- The surge in new claims for unemployment benefits suggests a slowdown in the US labor market.
- Gold could increase if the Fed signals a low likelihood of a hike in the next meeting.
- The increase in new jobless benefits claims in the US hinted at a possible recession.
Gold prices rose by 1% on Thursday as US weekly jobless claims surged, strengthening the expectation that the Federal Reserve will pause its interest rate hiking cycle.
The surge in new claims for unemployment benefits last week suggests a slowdown in the labor market, indicating potential recession risks. Edward Moya, a senior market analyst at OANDA, stated that this data reveals a weakness in the US economy, which is favorable for gold as it allows the Fed to hold off on rate hikes.
Gold could increase if inflation remains soft and the Fed signals a low likelihood of a hike in the next meeting. Following the jobs data release, the dollar fell to a near one-week low against other currencies, making gold more affordable for holders of different currencies.
Yields fell due to concerns that the increase in new jobless benefits claims in the US hinted at a possible recession in the future. The two-year Treasury yield, which indicates market expectations of future Fed policy, slightly decreased to 4.5085%.
Meanwhile, the yield on benchmark 10-year notes dropped to 3.712%. Based on two- and 10-year notes, the Treasury yield curve spread was -79.6 basis points. An inverted curve, where shorter-term debt yields more than longer-term debt, is typically seen as a sign of an impending recession.
With the Federal Reserve, European Central Bank, and Bank of Japan all having upcoming interest rate decisions, most traders refrained from significant buying or selling activities.
The CME’s Fedwatch tool indicates that money market participants now perceive a nearly 74% chance that the US central bank will refrain from raising interest rates, up from almost 66%. The decline in US interest rates exerts pressure on the dollar and bond yields, thereby enhancing the attractiveness of non-yielding bullion.
The US consumer inflation report for May, scheduled for release on June 13, could provide further clarity on the health of the world’s largest economy. Daniel Pavilonis, a senior market strategist at RJO Futures, noted that the gold market reflects significant uncertainty, and if yields continue to decrease, gold prices could surge.