- Gold continues to recover after the Michigan Consumer Sentiment data shows a dip in sentiment on Friday.
- Gold shurgged off higher inflation data earlier in the day as weak US jobs data on Thursday kept bets alive of furter Fed easing.
- Technically, XAU/USD returns to its range-bound mode as it unfolds a leg back higher.
Gold (XAU/USD) extends its rally, trading in the $2,640s on Friday, after the release the the preliminary Michigan Consumer Sentiment Index showed a slide in sentiment in October.
The Michigan Consumer Sentiment Index fell to 68.9 in October from 70.1 in the previous month and was below estimates of 70.8, according to data from the University of Michigan on Friday.
The release came after data showed US factory gate prices rose in September compared to a year ago but flat-lined compared to the previous month. The mixed data seemed to have little impact on Gold prices which continued trading in the $2,640s after the release.
The US headline PPI increased by 1.8% YoY in September, which was higher than the 1.7% registered in August, and beat estimates of 1.6%, data from the US Bureau of Labor Statistics (BLS) showed on Friday.
These gains, however, were not reflected in the monthly data which showed headline PPI rising 0.0% compared to 0.2% in August and below the 0.1% forecast.
The PPI ex Food and Energy rose by 2.8% YoY in September, which was higher than the 2.4% in August and beat expectations of 2.7%.
For core PPI the monthly data showed a slower 0.2% in September compared to 0.3% in August which was in line with expectations.
PPI figures are sometimes taken as a precursor of consumer prices since higher production prices are usually passed to consumers in the form of dearer shop prices.
Gold rallies after US jobs data
Gold rebounded from just above the key $2,600 psychological level on Thursday after the release of official US Jobless Claims data showed a surprising spike in the number of people claiming unemployment benefits. US Treasury yields dipped after the release, the US Dollar (USD) marginally weakened and Gold got a lift.
US Initial Jobless Claims in the week ending October 4 rose by 258K, above the 225K of the previous week and expectations of 230K, data from the US Bureau of Labor Statistics (BLS) showed. The rise in initial claims was well above the average, although this might have been caused by the exodus from Florida ahead of the impact of Hurricane Milton, according to Bloomberg News.
Continuing Claims for the week ending September 27 rose to 1.861 million, higher than the revised-down 1.819M of the previous week and roundly above the 1.830M estimate.
Overall, the data showed weakness creeping into the jobs market, which is likely to keep the Fed on track to cut interest rates (in order to stimulate borrowing and job creation) at its November policy meeting. In August, Fed Chairman Jerome Powell signaled he was shifting his focus from inflation to the Fed’s other mandate: “full employment”.
Although the market-based probability of the Fed lowering its fed funds rate by 50 basis points (bps) (0.50%) remained at zero after the release, the chances of a smaller 25 bps (0.25%) cut rose to 89% from 85% before the jobs’ data, according to the CME Fedwatch tool. The probability of the Fed leaving its key interest rate unchanged in November fell to 11% from 15%. These probabilities have since reverted to 85% for 25 bps and 15% for no-change.
Higher-than-expected inflation data, as measured by the Consumer Price Index (CPI) for September, released at the same time as the Jobless Claims’ data, failed to act as a counter-weight. Headline CPI climbed 2.4% year-over-year (YoY) from 2.3% previously, and core CPI rose 3.3% YoY from 3.2% previously. The higher inflation would normally be expected to increase bets of the Fed keeping interest rates unchanged to continue the fight against stubbornly high inflation, however, this was not the case on Thursday. This was probably due to the Fed’s new prioritization of employment.
Gold has recently gained a further backdraught from the speeches of Fed policymakers. A long list of officials commented on the outlook for monetary policy on Wednesday, and all were assessed as either neutral or dovish according to the FXStreet FedTracker, a new AI-powered tool that gauges the tone of Fed officials’ speeches on a dovish-to-hawkish scale from 0 to 10.
Gold could also be gaining due to attracting safe-haven flows amid elevated geopolitical tensions. Israel has stepped up its bombing of Hezbollah targets in Lebanon, causing substantial collateral damage, and investors remain on tenterhooks about the scale of Israel’s almost certain retaliation against Iran.
Technical Analysis: Gold returns to familiar range
Gold flips its short-term downtrend and rises back up into its familiar range above $2,625 after bottoming out at the $2,600 psychological level.
XAU/USD 4-hour Chart
The short-term trend has probably switched back to sideways, and given the technical analysis principle that “the trend is your friend,” the odds favor a continuation in the near term. This will likely see Gold continue its up-leg towards the old range ceiling at $2,670. A break above $2,653 (October 8 high) would provide more confirmation such a leg was evolving. Following that, Gold might unfold a leg back down to the range floor as it continues oscillating.
Gold’s medium and long-term trends remain bullish, however, and if one of these longer-term cycles resumes, it could, in theory, push the asset to even higher highs.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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