Data for the week, US NFP, came in above expectations. Markets took this as a sign that there would be no change in the Federal Reserve’s hawkish stance. Thus, the gold price rally was short-lived. Investment expert Gary Wagner analyzes the impact of the employment report on markets and gold prices.
The probability of the Fed’s higher rate hikes increased
The jobs report for September showed that 263,000 new jobs were added last month. However, 315,000 new jobs were added in the previous month. Thus, there was a decline in monthly earnings, albeit above expectations.
Its profound impact on nearly every asset class in the financial markets is not due to the lukewarm numbers. The real reason is the Federal Reserve’s expectation that these numbers will be even lower. The Fed had hoped Friday’s report would reveal even slower growth. Because that would show the progress the Fed has made in reducing inflation.
cryptocoin.comAs you follow, the Federal Reserve has increased interest rates at every FOMC meeting since March. Despite this, inflation still stands at 40-year highs. The Fed increased interest rates by 25 bps in March, 50 bps in May, and 75 bps in June, July and September. Thus, the Fed increased the benchmark rate from 0 to 25 basis points in February to 300 to 325 basis points in September. Today’s report shows that employment growth is slowing. However, it is believed that this contraction is not enough to slow the Fed’s current rate of rate hikes.
According to CME’s FedWatch tool, there was a 56.5% probability last week for the Federal Reserve to raise 75 basis points for the fourth consecutive year at its November FOMC meeting. However, it rose to 75.2% yesterday and to 82.3% today. This probability indicator uses 30-day Fed Funds futures pricing data. Thus, the FOMC rate estimates the probability of its movements.
“Gold prices could rise significantly in this scenario”
Today’s report also had a profound impact on US stocks. Following the report, the most active December contract, based on gold futures, was down $1,698.40. Before the report, it was at the level of $ 1,721.
So what does this mean for the future of gold prices? This report is extremely important in an extremely important data set that the Fed will use at its FOMC meeting on November 2. However, next week’s September CPI report is much more important. However, in terms of the Fed’s long-term impact on gold prices, it’s quite possible that market participants will have to focus on high inflation if it continues to raise interest rates and inflation stays flat at some point. If this assumption is correct, it’s possible that it could raise gold significantly. But it is also possible that there will be more pain in the future.
Our technical studies show that the first level of resistance occurred at $1,710, which is the 23.6% Fibonacci retracement based on very short-term Fibonacci retracement data set between September 28 and October 7. Major resistance stands at $1,738, the latest high of the rally that started after gold hit $1,621 low in recent years. The first level of support is at the 38.2% Fibonacci retracement at $1,693.80. Then $1,689.40 stands at the 42% retracement level.
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