Interest rate cut expectations weigh on gold price – Commerzbank

Gold prices were under pressure on Friday following the release of surprisingly robust US labor market data. The price fell to just above $2,630 per troy ounce before recovering somewhat, notes Carsten Fritsch, commodities analyst at Commerzbank.

Uncertainty is fueling demand for safe-haven gold

“The US labor market report showed a much stronger than expected increase in jobs created in September. In addition, the number of new jobs over the past two months has been significantly revised down. At the same time, the unemployment rate fell and average hourly earnings rose sharply. As a result, Fed rate cut expectations have been sharply reduced.”

“According to Fed funds futures, market participants now expect interest rates to be cut by just 25 basis points in both November and December. This is 25 basis points less than previously expected by the end of the year and in line with the expectations of the Fed and our economists. The fact that the price of gold did not correct more sharply is probably due to the conflict between Israel and Iran. Uncertainty about this is fueling demand for gold as a safe haven.”

“This can be seen from last Wednesday’s nearly nine-tonne ETF inflows. Thus, gold is currently being pulled in different directions by opposing factors. US inflation data due on Thursday is likely to show a further easing of price pressures, but is unlikely to spark renewed speculation about sharper Fed interest rate cuts. Therefore, higher gold prices are likely driven mainly by geopolitical risks.”