Gold prices inched closer to a one-month high on Friday, ultimately concluding the week with a modest gain of just over 1%. The mixed U.S. jobs report for August played a pivotal role in gold’s performance, as it added complexity to the Federal Reserve’s stance on interest rates. While payrolls exceeded forecasts, the unemployment rate rose to 3.8%, reaching an 18-month high.
Key Highlights:
The U.S. economy saw the addition of 187,000 non-farm payrolls in August, surpassing the anticipated 170,000. Simultaneously, the jobless rate increased from 3.5% to 3.8%, offering a nuanced perspective on the Federal Reserve’s potential actions to address current inflation levels.
Gold futures, with the most active December contract on New York’s Comex, reached a final trade price of $1,966.20 on Friday, settling the session officially at $1,967.10. This resulted in a minor increase of $1.20, or 0.06%. The peak for December gold during the session reached $1,981.70 per ounce, marking its highest level since August 7. Over the course of the week, gold prices rose by 1.4%, partially offsetting the 2% decline observed throughout August.
Spot gold, closely tracked by certain traders, concluded at $1,940.28 per ounce, showing a minimal gain of 16 cents, or 0.01%. Earlier in the session, the spot price surged to nearly $1,953, coming within a penny of its highest point since August 2.
The mixed employment data prompted speculation that the Federal Reserve might not rush into further interest rate hikes to address the current inflation rate. This development was viewed positively by risk assets, including gold. Craig Erlam, an analyst at OANDA, noted that the non-farm payrolls for August suggested that “interest rates may not rise any further.”
Looking ahead, the Federal Reserve has three remaining opportunities this year to adjust interest rates, with rate decisions scheduled for September 20, November 1, and December 13. The central bank may choose to implement one or two additional hikes, depending on economic indicators.
However, the Fed‘s decision-making process will be influenced by both job growth and unemployment rates. The mandate set by the U.S. Congress requires the central bank to pursue maximum employment for Americans, which is linked to a jobless rate of 4% or lower. The recent unemployment rate of 3.8% was the highest since February 2021.
Adam Button, an economist, highlighted that the odds of a November rate hike had decreased to 36%, indicating the possibility of rate cuts if that probability reaches zero. The Fed has pledged not to cut rates as long as inflation remains above 2%, setting the stage for a potential extended struggle in achieving the 2% target for inflation.
The fluctuations in inflation levels suggest that the Federal Reserve will need to carefully consider its approach to interest rates, aiming to bring inflation back to pre-pandemic levels of 2% or lower. While inflation surged to 9.1% year-on-year in June 2022 due to pandemic-related spending, it had moderated to 3% as of the previous month.
Spot Price Outlook:
Spot gold experienced a second consecutive week of advances but failed to secure a closing position that would have positioned it for a more substantial upward trend. The spot price settled at $1,939, just shy of key resistance levels.
The 50-day Exponential Moving Average (EMA) at $1,931 offers robust support, with potential for a decline to the 200-day Simple Moving Average (SMA) at $1,914 if the $1,931 level is consistently breached.
Conversely, maintaining stability above the $1,942-$1,945 range could favor a retest of the $1,951-$1,954 level. A decisive breakthrough above this zone would further strengthen bullish momentum, with a target of $1,965 in sight. However, failure to establish above $1,954 may lead to a resumption of the downward correction.
As gold prices continue to navigate the intricate dynamics of the global economy and Federal Reserve policy, traders and investors will closely monitor economic indicators and central bank actions for cues on future market movements.
