Gold trades in positive territory ahead of US employment data

Gold prices rose in European trading on Friday, extending their move in positive territory for a second consecutive day, supported by a pause in the rally in the US dollar and Treasury yields ahead of the release of the US employment report for September.

The data are expected to provide crucial clues about the likelihood of the Federal Reserve raising interest rates in October, particularly as US policymakers rely heavily on labor market data alongside inflation indicators when determining the need for further monetary policy normalization.

The Price

• Gold prices rose 0.45% to $4,196.95, from the opening level of $4,177.69, after recording a low of $4,133.85.

• At Thursday’s settlement, gold prices gained 0.5%, their second increase in three days, as the metal continued to recover from an eight-week low of $4,111 an ounce.

• In addition to buying from lower levels, gold prices rose yesterday after the 10-year US Treasury yield retreated from its highest level in 24 years.

Weekly trading

So far this week, which officially ends with Friday’s settlement, gold prices are down 2.1% and are on track for a second consecutive weekly loss.

Those losses are largely due to the broad rise in the US dollar and Treasury yields amid hawkish expectations for the Federal Reserve’s interest rate path as the central bank faces mounting inflationary pressures.

US dollar

The US Dollar Index fell 0.2% on Friday, retreating from a 17-month high of 102.21 and reflecting a pause in the US currency’s rally against a basket of global currencies.

As is widely known, a weaker US currency makes dollar-denominated gold bullion more attractive to buyers holding other currencies.

In addition to profit-taking, the US dollar is weakening as investors refrain from building new long positions ahead of the release of US employment data.

US Treasury yields

The 10-year US Treasury yield fell 0.25% on Friday, extending its losses for a second consecutive session and moving away from a 24-year high of 5.342%, putting downward pressure on the US dollar.

US interest rates

• According to the CME FedWatch Tool, the probability of the Federal Reserve leaving interest rates unchanged at its October meeting currently stands at 73%, while the probability of a 25-basis-point rate hike stands at 27%.

• The probability of the Federal Reserve leaving interest rates unchanged at its December meeting currently stands at 19%, while the probability of a 25-basis-point rate hike stands at 81%.

US employment

To reassess those expectations, markets are awaiting the monthly US employment report later today, which will include key labor market indicators, particularly nonfarm payrolls for September, alongside the unemployment rate and average hourly earnings.

The nonfarm payrolls report is due at 12:30 GMT, with expectations that the US economy added 89,000 jobs in September, compared with a loss of 162,000 jobs in August. The unemployment rate is expected to remain unchanged at 4.1%, while average hourly earnings are forecast to rise 0.3%, matching the previous reading.

Gold outlook

We expect that if employment data come in below market expectations, the probability of a US interest rate hike in October will decline, potentially driving further gains in gold and other precious metals.

SPDR

Gold holdings at the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, increased by around 0.85 metric tons on Thursday, bringing total holdings to 1,056.55 metric tons.