Will strong jobs numbers force the Fed to keep interest rates on hold?
Nonfarm payrolls exceeded expectations in December, increasing by 256,000 compared to economists' expectations of 160,000. The unemployment rate fell to 4.1% and average hourly wages increased by 0.3%. This strong performance made it less likely that the Fed would cut rates immediately, as futures markets currently indicate only one rate cut in 2025, likely mid-year.
U.S. Treasury yields also rose sharply in response, with the 10-year yield hitting 4.745%, its highest level since late 2023, and the 2-year yield rising more than 10 basis points to 4.369%. The situation for gold became even more tense as the US dollar strengthened on positive labor market data, marking its sixth straight week of gains.
Can gold withstand the pressure of a rising dollar?
Gold prices initially fell after the better-than-expected employment report, but quickly rebounded. Concerns over President-elect Donald Trump's economic policies add to the uncertainty. Proposals such as tariffs, tax cuts and mass deportations are seen as potentially inflationary and could complicate the Federal Reserve's monetary policy plans.
This uncertainty has not diminished gold's appeal as a safe-haven asset, with investors remaining cautious ahead of President Trump's inauguration on January 20. Despite the rise in the dollar and bond yields, gold has shown resilience, reflecting continued demand from risk-averse investors.
As President Trump's policies unfold, what's next for gold?
The future implementation of President Trump's policies looms large over the market, and gold could benefit from heightened anxiety if inflationary pressures increase. At this time, gold traders need to monitor key developments in fiscal policy and Fed signals. This is because these are likely to influence gold's next move.
While a strong dollar and rising yields may limit upside in the near term, gold's safe-haven status could provide a bullish tone in the face of uncertainty.
