- Gold prices moves marginally lower, trading within $2,020-$2,024, reflecting cautious investor sentiment.
- US employment strength and PMI figures support the Fed’s inclination to maintain current rate levels.
- Rising US Treasury yields indicate market skepticism about immediate Fed rate cuts, a tailwind for the US Dollar.
Gold price prints modest losses on Thursday after economic data from the United States portrays the US economy as solid based on strong employment figures. Business activity continues to expand despite cooling off from an earlier hot streak, while the Minutes of the latest Federal Reserve’s (Fed) monetary policy meeting signaled that policymakers are in no rush to slash rates. The XAU/USD trades within the $2,020-$2,024 area, down by 0.06%.
XAU/USD traders remain entertained by a busy economic docket in the US. The US Bureau of Labor Statistics (BLS) revealed that unemployment claims for the latest week dropped compared to the one ending on February 10. At the same time, S&P Global revealed mixed February Flash PMIs, which remained in expansionary territory, fortifying the case that the US Federal Reserve (Fed) should keep rates higher for longer.
In the meantime, US Treasury bond yields are rising on the short end of the curve, a signal that investors remain skeptical that the Fed would cut rates in the March or May meetings. The latest Federal Open Market Committee (FOMC) minutes emphasized the US central bank is highly committed to tackling inflation even though economic risks are skewed to the downside. Policymakers emphasized that they would decide to ease policy via a data-dependent approach.
The FOMC Minutes showed Fed officials remain hesitant to cut rates too soon, while adding they did not see it appropriate to lower interest rates until they gained “greater confidence” in core inflation moving sustainably toward 2%. Even though policymakers acknowledged that the risks of achieving both mandates is more balanced, they remained “highly attentive” to inflationary risks, even though economic risks are skewed to the downside.
Daily digest market movers: Gold retraces as traders see the Fed holding rates higher
- US Initial Jobless Claims for the week ending February 17 fell by 12,000 to 201,000, coming in under the anticipated 218,000 and the prior week’s figure of 213,000. This drop indicates a continued tightness in the labor market, which is generally interpreted as a potential factor that could drive inflation upward.
- Business activity in the US moderated in February, as reported by S&P Global. Both the Services and Manufacturing Purchasing Managers Index (PMI) remained in the expansionary zone, indicating growth. However, the Services PMI recorded a figure of 51.3, falling short of both expectations and January’s results, while the Manufacturing PMI rose to 51.5, surpassing forecasts and the previous month’s 50.7. Consequently, the Composite Index, which aggregates the performance of both sectors, declined slightly from 52 to 51.4.
- The CME FedWatch Tool sees traders expect the first 25 bps rate cut by the Fed in June 2024.
- Investors are pricing in 95 basis points of easing throughout 2024.
- The US Dollar Index, tracking the performance of the US Dollar against a basket of six major currencies, is currently trading at around 103.98, down 0.01%.
- The Federal Reserve Vice-Chair Philip Jefferson said that he’s looking to a broad set of indicators, before deciding to cut interest rates. Despite disregarding giving a timetable of when the US central bank would begin to ease monetary conditions, he remains optimistic about the Fed bringing inflation toward its 2% target.
Technical analysis: Gold trades within familiar levels, capped by the 50 and 100-day SMA
Gold is trading sideways but is slightly tilted to the downside, capped by the 50-day Simple Moving Average (SMA) at $2,033.27. The non-yielding metal’s failure to breach the 50-day SMA opened the door for a pullback, which could be extended toward the October 27 daily high-turned-support at $2,009.42. A breach of the latter will expose the 100-day SMA at $2,002.05. The next stop would be the December 13 low at $1,973.13, followed by the 200-day SMA at $1,965.86.
On the flip side, if buyers lift the XAU/USD above the 50-day SMA, look for a challenge of the $2,050.00 figure. Upside risks lie at $2,065.60, the February 1 high.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Breaking News: US Jobs Data Boosts Treasury Yields, Sending Gold Prices Plummeting!
In a significant and unexpected turn of events, the US jobs data has taken the financial world by storm. The release of the latest non-farm payrolls report has boosted Treasury yields to multi-year highs, causing a sharp dip in gold prices. This news has shaken up the markets and has left investors scrambling to adjust their strategies. In this article, we will discuss the implications of this news and what it means for the future of the US economy. So let’s dive in!
The US jobs data, also known as the non-farm payrolls report, is released each month by the Bureau of Labor Statistics. It is a key indicator of the health of the US economy, as it tracks the number of jobs added or lost in the non-farm sectors. The report for February 2021 showed an addition of 379,000 jobs, which was almost double the expectations of economists. This marks a significant improvement from January’s revised figure of 166,000 jobs.
The surge in job growth has sent Treasury yields soaring. The 10-year Treasury yield hit a one-year high of 1.625%, while the 30-year Treasury yield climbed to a more than two-year high of 2.4%. This increase in yields indicates that investors are optimistic about the future of the economy and expect inflation to rise. As a result, bond prices have fallen, pushing yields up.
This surge in Treasury yields has had a significant impact on the price of gold, causing it to plummet. Gold is often seen as a safe-haven asset during times of economic uncertainty, and its value tends to rise during periods of low interest rates and inflation. However, with the unexpectedly positive jobs data and the subsequent rise in Treasury yields, investors have shifted their focus away from gold and towards other assets with potentially higher returns. As a result, gold prices dropped by over 1%, reaching its lowest level in nine months.
So what do these developments mean for the average investor?
For one, it highlights the importance of understanding the interconnectivity of the financial markets. A seemingly unrelated piece of data, such as the US jobs report, can have a ripple effect on various asset classes. It also underscores the significance of staying informed about economic news and events, as they can drastically impact investment decisions.
Furthermore, the rise in Treasury yields and the fall in gold prices may signal a shift in investor sentiment towards inflation. With the US government implementing multiple stimulus packages and the Federal Reserve maintaining a dovish approach, inflation expectations have been rising in recent months. This trend may continue as the economy recovers from the effects of the pandemic and could potentially lead to higher interest rates, which would further drive up Treasury yields.
For those invested in gold or considering it as part of their portfolio, this recent dip may present a buying opportunity. As with any investment, it is important to carefully weigh the risks and rewards and seek professional advice before making any decisions.
In conclusion, the release of the US jobs data and the subsequent boost in Treasury yields have caused some turbulence in the markets, particularly for gold prices. However, this news also highlights the resilience of the US economy and the emergence of a more optimistic outlook. As always, staying informed and keeping a close eye on market developments is crucial for investors to make informed decisions.
We hope this article has provided valuable insights into the recent developments in the financial markets and how they may impact investors. As always, remember to conduct thorough research and seek professional advice before making any investment decisions. Happy investing!
