Gold price recorded its first weekly loss after trading in the green for three consecutive weeks. In recent sessions, it has been trading sideways while remaining close to the fresh record high hit about a week ago.
A stronger-than-expected US jobs report have pointed to a solid labor market; increasing bets of a less aggressive rate cut of 25 basis points. Subsequently, the US dollar has increased its gains with higher Treasury yields increasing the opportunity cost of holding the non-yielding bullion.
At the same time, geopolitical tensions in the Middle East have supported gold price due to its status as a safe haven. Investors are concerned over the escalation of the current conflicts between Israel and Iran.
US labor market
Data released on Friday by the US Department of Labor indicated that nonfarm payrolls rose by 254,000 in September. The figure surpassed expectations of an additional 147,000 jobs as well as the prior month’s 159,000. The average hourly earnings also rose by 0.4% on a month-on-month basis. While the figure was a decline from August’s 0.5%, it came in higher than the expected 0.3%. At the same time, US unemployment rate fell from the previous month’s 4.2% to 4.1%.
The stronger-than-expected US jobs report indicated that the country’s labor market is still solid. This comes about two weeks after the Federal Reserve announced a jumbo interest rates cut meant to support the slowing labor market. In addition to attaining price stability, the Fed is also keen on reaching maximum employment.
The latest jobs report is in tandem with Jerome Powell’s remarks in his latest press conference. In his speech, he maintained that the US labor market is solid adding that “the US economy is in good shape…The labor market is in a strong pranted, it lace. We want to keep it there. That’s what we’re doing.”
Following the September jobs report, the market is betting on a more modest interest rate cut of 25 basis points during its November meeting. In turn, there is a growing disregard for a 50 bps rate cut from the US central bank.
After the Fed’s super-sized rate cut, gold price rallied by over 5% to a fresh record high at $2,687.47 per ounce. The rallying was founded on the fact that lower interest rates decrease the opportunity cost of holding the non-yielding bullion. Besides, the exerted pressure on the US dollar made the precious metal less expensive for buyers holding foreign currencies.
In the same breath, signs of a solid labor market have further boosted the US dollar; making gold more expensive for buyers with other currencies. On Friday, the greenback retested a level last recorded in late August. Similarly, the benchmark 10-year Treasury yields rose to a two-month high; lowering investors’ interest in the non-yielding asset.
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Geopolitical tensions
Additional gains on the US dollar weighed on the gold price as the week ended. Even so, concerns over conflicts in the Middle East limited its downward movement.
On Tuesday, Iran launched close to 200 ballistic missiles on Israel. Granted, there were no fatalities recorded as Israeli and US militaries were able to intercept most of them. Even so, the attack has heightened fears over a full-blown war in the region. Iran has warned the US against interfering while threatening a ‘strong response’ should Israel retaliate.
When asked if the US would support Israeli attacks on Iranian oil facilities, President Biden stated, “We are discussing that. I think that would be a little…anyway.” As a traditional safe haven, gold price continues to find support in the tensions.
Gold price analysis
Gold price peaked at $2,685 on September 26 because of the dovish Federal Reserve and the rising geopolitical events.
It has now been in a consolidation phase, forming a bullish flag chart pattern, which is often a positive sign.
Gold has remained above the 50-day and 25-day Exponential Moving Averages (EMA). It also remains above the upper side of the rising wedge pattern that has been forming since March.
At the same time, the two lines of the MACD indicator have formed a bearish crossover, while the Relative Strength Index (RSI) has formed a bearish divergence chart pattern.
Therefore, gold is giving mixed signals, with the bullish flag pattern pointing to more upside while the bearish divergence points to more downside.
As such, a break above the all-time high will point to more upside in the near term. If this happens, the next point to watch will be at $2,700. On the other hand, a drop below $2,600 will point to more downside.
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