- Gold price managed to recover some losses as the private payrolls failed to meet estimates.
- The Fed is expected to keep interest rates unchanged but will keep expectations of further policy tightening alive.
- Middle East tensions keep the broader appeal for Gold bullish.
Gold price (XAU/USD) extended its two-day losing spell but recovered some losses after the United States Automatic Data Processing (ADP) reported that employers hired 113K job seekers, which were lower than expectations of 159K but significantly higher than the former reading of 89K. The precious metal would show a decisive move after the interest rate decision by the Federal Reserve (Fed) and the Institute of Supply Management (ISM) Manufacturing PMI data for October. The precious metal falls sharply even though markets widely expect that the Fed will keep interest rates unchanged in the 5.25%-5.50% range. However, a hawkish interest rate outlook is highly anticipated as robust spending by households and strong labor market conditions keep upside inflation risks alive.
Fed Chair Jerome Powell and his colleagues may keep the likelihood of further policy tightening on the table as the progress in inflation easing toward the 2% target has slowed due to strong wage growth. US households having high purchasing power are spending heavily, keeping the core Personal Consumption Expenditure (PCE) price index relatively stubborn.
Apart from the upcoming Fed decision, the broader appeal for Gold is still upbeat as Middle East tensions persist. The Israeli army is preparing for the ground incursion in Gaza as Israeli authorities rejected calls for a ceasefire.
Daily Digest Market Movers: Gold price rebounds as private payrolls miss estimates
- Gold price starts November on a cautious note as investors shift focus to the Federal Reserve’s monetary policy.
- The Fed is expected to keep interest rates unchanged in the range of 5.25%-5.50%. Investors hope that higher US long-term bond yields and gradually declining price pressures will back the Fed to keep interest rates steady..
- 10-year US Treasury yields have rebounded strongly to 4.91% on expectations that the Fed will keep interest rates higher for a significantly longer period.
- Fed policymakers said that higher US bond yields are sufficient to tighten financial conditions, dampening overall spending and investment.
- Cleveland Fed Bank President Loretta Mester said ahead of the November monetary policy meeting that higher bond yields are equivalent to one interest rate hike of 25 basis points (bps). The Fed could use higher Treasury yields as a substitute for further policy tightening.
- The Fed is expected to deliver hawkish guidance on interest rates as the US economy is resilient on the grounds of consumer spending, labor demand, and wage growth.
- Fed Chair Jerome Powell and his colleagues could keep the possibility of further policy tightening high as inflation looks persistent in the near term due to robust consumer spending and strong wage growth.
- Jerome Powell said in his latest remarks that the current Fed policy rate is “fairly close” to the sufficiently restrictive level needed to ensure price stability over the medium term, but that the process of getting inflation down to 2% has a “long way” to go.
- The US Dollar Index (DXY) consolidates near 106.80 ahead of the Fed’s policy meeting, and the ISM manufacturing PMI for October.
- For the ISM Manufacturing PMI, consensus points to a steady reading at 49.0. If consensus is right, the PMI will remain below the 50.0 threshold which separates expansion from contraction in factory activity. This would be the 12th straight contraction.
- An upbeat labor and factory data would strengthen the appeal for the US Dollar and Treasury yields. Robust economic data would also allow Fed policymakers to keep interest rates elevated for a longer period.
- On the geopolitical front, Hamas’ promise of releasing hostages in a few days has eased safe-haven bets marginally. Meanwhile, the Israeli Defence Forces (IDF) has expanded their ground attack against Hamas in the northern section of the Gaza strip.
- The broader outlook for Gold is still upbeat as a ceasefire between Israel and Palestine is less likely, while fears of Iran’s intervention in the Middle East conflict remain high.
Technical Analysis: Gold price rebounds above $1,980
Gold price faced an extended sell-off while attempting to stabilize above the psychological resistance of $2,000. The precious metal drops sharply on expectations that the Fed will keep the door open for further policy tightening. The yellow metal has been trading in a range between $1,960 and $2,010 for the past week. The gold price has discovered some support near $1,970.00 but a volatile action is widely anticipated after the Fed’s policy announcement. Momentum oscillators continue to trade in a bullish trajectory.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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