- Powell’s comments fueled optimism that the US central bank might pause rate hikes.
- Traders now estimate a 70% chance of no Fed rate hike in December.
- The number of new claims for unemployment benefits in the US hit a nine-month low.
Gold rose for the third consecutive session on Thursday due to increasing Middle East tensions, driving up demand for safe-haven assets. Moreover, Federal Reserve Chair Jerome Powell’s comments fueled optimism that the US central bank might pause rate hikes.
Meanwhile, Israel conducted more airstrikes on Gaza, with British Prime Minister Rishi Sunak echoing US President Joe Biden’s support for the conflict against Hamas.
Daniel Ghali, a commodity strategist at TD Securities, stated that while gold has gained because of the war, buying fatigue is approaching.
Meanwhile, Powell carefully balanced his remarks, acknowledging the economy’s unexpected strength and highlighting emerging risks and the need for caution.
Edward Moya, a senior market expert at OANDA, noted that the market did not interpret Powell’s stance as hawkish and perceived numerous economic risks that could support gold prices.
Traders now estimate a 70% chance of no rate hike in December, compared to around 50% before Powell’s remarks, according to CME’s FedWatch Tool.
Ghali added, “Deteriorating US economic data is necessary to attract interest in the precious metal, which has been notably absent. A recession could prompt the Fed to cut rates and help gold prices surpass $2,100.”
Elsewhere, this week’s data indicated robust consumer demand and a tight labor market. On Thursday, a report from the US Labor Department revealed that the number of new claims for state unemployment benefits in the United States hit a nine-month low.
US jobless claims (Source: US Labor Department)
Initial claims for US state unemployment benefits decreased by 13,000 to 198,000 on a seasonally adjusted basis for the week ending October 14, marking the lowest level since January.
The labor market remains strong despite the central bank boosting its benchmark overnight interest rate by 525 basis points since March 2022. The unexpected decrease in initial jobless claims, as reported by the Labor Department, combined with strong retail sales and factory production in September, suggests that the economy is maintaining its momentum.
This string of positive economic data has increased expectations that the Federal Reserve may keep interest rates elevated for an extended period. As long as US interest rates stay high, gold prices will stay low.