The US economy created more jobs than expected in October. Despite this, gold managed to climb above the $1,670 level with a strong move. According to some market analysts, gold is no longer fearful of the Fed’s aggressive interest rate stance as signs of a critical recession hit its highest level in four decades.
“Recession threat will continue to support gold prices”
cryptocoin.comAs you can follow, gold prices see a significant acceleration after the US NFP data. It’s also the most notable yield curve reversal since the 1980s, when the Federal Reserve was so aggressive in tightening interest rates.
December gold futures were last traded at $1,677, up 2.84% on the day. Gold is also helping the market as the price managed to hold critical support above last month’s low near $1,621. Many economists point out that a yield curve inversion always precedes a recession. Ole Hansen, head of commodity strategy at Saxo Bank, comments:
The threat of recession is at its highest level in 40 years. This name will continue to support gold prices.
“This environment will be bullish for yellow metal”
Markets continue to expect the Federal Reserve to aggressively raise interest rates by 2023. However, Hansen says these expectations will likely change rapidly as the threat of recession materializes. In this context, the strategist makes the following statement:
Investors will quickly realize that the Fed cannot bring inflation back to its 2% target. We expect to see slower economic growth and inflation between 4% and 5%. This environment will be bullish for gold.
“The more this fear grows, the more attractive gold becomes”
Meanwhile, the World Gold Council announced that global demand for physical gold rose 28% in the third quarter. After that, the bullish sentiment has been quietly rising in the market for the past week. In addition to strong individual demand, central banks purchased around 400 tons of gold between July and September, the report said.
Although the precious metals market has seen strong individual demand, the dip in investor demand has had the biggest short-term impact on prices, according to analysts. However, analysts say the rise in investor fear will trigger renewed safe-haven demand for gold. Bob Minter, director of ETF Investment Strategy at Abrdn, comments:
You don’t have to look far to find things to worry about in this economy. Also, as this fear grows, gold becomes much more attractive.
“This will put gold in an upside bullish trend”
Although gold made some significant gains on Friday, analysts point out that there is still some work to be done. Ole Hansen says gold has bottomed out and now investors need to see how high prices can go. In addition, Hansen draws attention to the following levels:
I would like to see prices rise above the initial support at $1,675. However, the final target is around $1,730. If prices can climb above $1,735, we can safely bottom. This will put the gold in an upside bullish trend.
“Fed will continue to maintain its aggressive monetary policy stance”
On Friday, the Bureau of Labor Statistics said 261,000 jobs were created last month. The data significantly exceeded what economists had predicted to gain around 197,000 jobs. Headline jobs were stronger than expected, while the unemployment rate fell short of expectations and rose to 3.7% from 3.5% in September. According to consensus estimates, economists had expected a rise to 3.6%.
The gold market has managed to post solid gains above $1,670 per ounce. Alongside solid job gains, the report revealed that wages continued to rise more than expected. In addition, the report recorded a mixed revision in the employment data for August and September.
According to some economists, the resilient strength in the labor market will force the Fed to maintain its aggressive monetary policy stance. Markets still see a 50/50 chance that the Fed will raise rates by either 50 or 75 basis points in December. However, the advantage has changed a bit and has a 75 bps movement. Katherine Judge, senior economist at CIBC, comments:
The Fed is looking for signs of a cooling in the labor market. October data didn’t provide much on that front. Today’s data still justifies another massive rate hike in the December FOMC, unless the November data show any significant deterioration in labor market conditions.
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