- Despite strong US employment gains, gold rebounded 0.69%, challenging the Fed's interest rate cut policy.
- Gold rebounded from a post-labor data slide as investors weighed the Fed's cautious deflationary stance.
- Upcoming US inflation and retail sales data will influence the trajectory of gold and Fed policy.
Gold prices rebounded from Friday's daily lows, extending their rally for a fourth straight day as traders ignored a strong report in U.S. non-farm payrolls. This eased the Fed's concerns about the labor market, but not as much inflation as some officials acknowledged. XAU/USD is trading 0.69% higher at $2,687.
Bullion plunged after the U.S. Bureau of Labor Statistics (BLS) revealed that the economy added a significant number of workers by more than 200,000. As a result, the unemployment rate has fallen, but the Fed's latest minutes show investors are betting on the extent of rate cuts based on the fact that the economy continues to create enough jobs while the disinflationary process has “stopped.” It had been factored in that the market would shrink.
Nevertheless, XAU/USD recovered as market participants digested the data. The data reassured Fed officials that the labor market remains healthy while the U.S. central bank works to combat inflation after cutting interest rates by 100 basis points in 2024, but inflation has been trickling recently. It's rising.
The US dollar soared to multi-month highs, according to the US Dollar Index (DXY). DXY reached 109.96 before paring its gains and is now up 0.49% at 109.68. U.S. Treasury yields spiked but remained stable, especially in the belly of the curve.
Chicago Fed President Austan Goolsby said he's not complaining because the economy has created more than 250,000 jobs. He added that the job market appears stable “at full employment” and that “interest rates should come down” if the situation stabilizes and there is no rise in inflation.
Against this backdrop, investors' focus will turn to next week's data. The U.S. schedule includes retail sales and unemployment claims for the week ending January 11, as well as producer and consumer inflation statistics.
A daily digest of what moves the market: Gold prices soar against the US dollar
- Gold prices ignored the rise in US real yields and rose 2bps to 2.30%. At the same time, the US 10-year T-note yield rose 7.5bps to 4.767%.
- The U.S. Bureau of Labor Statistics (BLS) said the economy added 256,000 jobs last month, but the figure for November was revised downward from 227,000 to 212,000. The consensus is that 160,000 people will be added to the workforce, bringing total civilian employment to 223,000.
- The unemployment rate fell to 4.1% and the average hourly wage (AHE) fell from 4% to 3.9%. The data led traders to expect the US Federal Reserve to cut interest rates just once in 2025.
- Expectations for Fed easing continued to decline slightly. Federal funds futures contracts for December include 30 basis points (bp) of easing.
- The U.S. Consumer Confidence Index for January released by the University of Michigan (UoM) fell to 73.2, lower than the expected 73.8. One-year inflation expectations rose from 2.8% to 3.3%, and five-year inflation expectations rose from 3% to 3.3%.
- On Thursday, Fed President Michelle Bowman maintained her hawkish stance, saying the central bank should be cautious in adjusting interest rates, while Kansas City Fed President Jeffrey Schmidt added that interest rates were “about” neutral. .
- Earlier, Philadelphia Fed's Patrick Harker said the US central bank could pause amid uncertainty, while Boston Fed's Susan Collins said the current outlook was It suggested a gradual approach to rate cuts.
XAU/USD technical outlook: Gold price soars above $2,650 as bulls intervene
Gold's uptrend continues as the yellow metal has made consecutive highs and lows, with traders eyeing the $2,700 mark. As seen in the Relative Strength Index (RSI) indicator, momentum is heavily tilted to the upside, indicating that the bulls have the upper hand.
If XAU/USD clears $2,700, the next resistance will be at the December 12 high of $2,726 and the all-time high (ATH) of $2,790.
Conversely, a decline below $2,650 would challenge the 50-day and 100-day simple moving averages (SMAs) of $2,645 and $2,632, respectively. On further decline, $2,600 is the next move higher, above the 200-day SMA of $2,503.
Fed Frequently Asked Questions
Monetary policy in the United States is shaped by the Federal Reserve Board (Fed). The Fed has two responsibilities: achieving price stability and promoting full employment. The main tool to achieve these goals is to adjust interest rates. If prices rise too fast and inflation exceeds the Fed's 2% target, interest rates will be raised, raising borrowing costs for the entire economy. This makes the US a more attractive place for international investors to put their money, and the US dollar (USD) appreciates. If inflation falls below 2% or unemployment is too high, the Fed could lower interest rates to encourage borrowing, which would weigh on the dollar.
The Federal Reserve (Fed) holds eight annual policy meetings where the Federal Open Market Committee (FOMC) assesses economic conditions and decides on monetary policy. Twelve Fed officials will attend the FOMC meeting. Seven board members, the president of the New York Fed, and four of the remaining 11 regional reserve bank presidents will serve rotating one-year terms. .
In extreme circumstances, the Federal Reserve may resort to a policy called quantitative easing (QE). QE is a process by which the Fed significantly increases the flow of credit in a stymied financial system. This is a non-standard policy tool used in times of crisis or when inflation is extremely low. This was the Fed's weapon of choice during the Great Financial Crisis of 2008. This involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE typically weakens the US dollar.
Quantitative tightening (QT) is the reverse process of quantitative easing, in which the Federal Reserve stops buying bonds from financial institutions and reinvests the principal of maturing bonds to buy new bonds. Never. It is usually positive for the value of the US dollar.
