US NFP Fed Rate Hike Gold Futures
Fundamental Analysis

US Labor Market Remains Resilient Amid Rising Interest Rates

  • The rising US Dollar puts pressure on gold prices after Powell’s hawkish comments.
  • The US labor market is still showing strength despite rising interest rates.
  • The ISM non-manufacturing PMI dropped to 54.4 in October, the lowest level since May 2020.

Following hawkish comments from Federal Reserve Chair Jerome Powell, Gold (GC) futures prices hit a more than one-month low on Thursday as the Dollar and US Treasury yields rose, undermining the attraction of the non-yielding metal.

Last week saw an unexpected decline in the number of new unemployment benefit claims made by Americans. This showed that the labor market is still robust despite sluggish domestic demand brought on by the Federal Reserve’s aggressive interest rate increases.

There was also a report of an unanticipated increase in job opportunities in September. Resilience in the labor market justifies the Fed’s tightening monetary policy and supports the economy’s expansion.

Although the labor market is stable, increased borrowing rates are hurting other areas of the economy.

Jobless claims vs planned layoffs (Source: Refinitiv Datastream)
Jobless claims vs. planned layoffs (Source: Refinitiv Datastream)

There has been an increase in layoffs despite the still-minimal jobless roles. The number of layoffs reported by American-based businesses jumped 13% to 33,843 in October, the most since February 2021. Construction, technology, industrial goods, and warehousing businesses all saw an increase in scheduled layoffs.

According to a survey released on Thursday, the Institute for Supply Management’s non-manufacturing PMI dropped to 54.4 in October, the lowest level since May 2020. This has limited gold’s losses.

The odds of a rate hike of 50 or 75 basis points in December remain almost equal among traders. However, the peak Fed funds rate is now expected to rise to at least 5%, compared to an earlier expectation of a rise from 4.50% to 4.75%.

Rising US interest rates hurt the price of gold because they raise the opportunity cost of owning non-yielding metal.

“I don’t see the tide turning for gold and it gathering bullish momentum again until after the Fed is done raising rates, probably not till March of 2023,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

The focus now shifts to October Non-farm payroll figures in the United States, which are due on Friday and could provide more insight into the Fed’s trajectory on rate hikes. A higher-than-expected reading could push gold futures prices lower.