Gold returns to familiar range after weak US jobs data

• Gold bounces back after worse-than-expected US jobless claims data.
• Despite higher inflation data suggesting interest rates may remain high, jobs data suggest otherwise.
• Technically, XAU/USD is reverting to range bound mode as it moves a leg back higher.

Gold (XAU/USD) recovers to trade around $2,630 on Friday as weak US jobs data cements expectations that the Federal Reserve (Fed) will cut interest rates at its November policy meeting . Anticipation of lower interest rates is bullish for gold, as such an occurrence would lower the opportunity cost of holding the non-interest-paying asset, making it more attractive to investors.

Gold rises after US jobs data

Gold bounced back from just above the key psychological level of $2,600 on Thursday after official U.S. jobless claims data showed a surprise increase in the number of people filing for unemployment benefits. US Treasury yields fell after the release, the US dollar (USD) weakened marginally and gold rose.

Initial U.S. jobless claims in the week ended Oct. 4 rose by 258,000, above 225,000 the previous week and expectations of 230,000, data from the U.S. Bureau of Labor Statistics (BLS) showed. The increase in initial claims was well above average, although that may have been caused by the exodus from Florida ahead of the impact of Hurricane Milton, according to Bloomberg News.

Continuing claims for the week ended Sept. 27 rose to 1.861 million, up from a revised 1.819 million the previous week and well above the estimate of 1.830 million.

Overall, the data showed weakness creeping into the labor market, which will likely keep the Fed on track to cut interest rates (to boost lending and job creation) at its policy meeting in November. In August, Fed Chairman Jerome Powell signaled that he was shifting his focus from inflation to the Fed’s other mandate: “full employment.”

Although the market-based probability of the Fed cutting its federal funds rate by 50 basis points (bps) (0.50%) remained at zero after the release, the odds of a cut of less than 25 bps (0.25%) have rose to 89% from 85.% before the jobs data, according to the CME Fedwatch tool. The likelihood that the Fed will leave its key interest rate unchanged in November fell to 11% from 15%. Those probabilities have since returned to 85% for 25 bps and 15% for no change.

Higher-than-expected inflation data as measured by the Consumer Price Index (CPI) for September, released at the same time as jobless claims data, failed to act as a counterweight. Headline CPI rose 2.4% year-on-year from 2.3% previously, and core CPI rose 3.3% from 3.2% previously. Normally, higher inflation would be expected to increase the Fed’s bets by keeping interest rates unchanged to continue the fight against stubbornly high inflation, however, this was not the case on Thursday. This was likely due to the Fed’s new prioritization of employment.

Gold recently gained a fresh backdraft from Fed policymakers’ speeches. A long list of officials commented on the monetary policy outlook on Wednesday, and all were rated either neutral or accommodative, according to FXStreet’s FedTracker, a new AI-powered tool that conveniently assesses the tone of Fed officials’ speeches. – the falcon scale from 0 to 10.

More US inflation data is due out on Friday, in the form of September’s factory-gate inflation numbers, or the producer price index (PPI). However, judging by the lack of reaction to the CPI data, any impact on gold is likely to be muted, if not significantly diverging from forecasts. The US Michigan Consumer Sentiment survey is another major release on Friday that could have an impact on gold.

Gold could also gain as it attracts safe-haven flows amid heightened geopolitical tensions. Israel has stepped up its bombing of Hezbollah targets in Lebanon, causing substantial collateral damage, and investors remain uneasy about the extent of almost certain Israeli retaliation against Iran.

Technical Analysis: Gold returns to familiar range

Gold is reversing its near-term downtrend and rising back into the familiar range above $2,625 after reaching the psychological $2,600 level.

XAU/USD 4 Hour Chart

The short-term trend has probably gone sideways, and given the principle of technical analysis that “the trend is your friend”, the odds favor a short-term continuation. This will likely see gold continue its ascent towards the old $2,670 ceiling. A break above $2,653 (October 8 high) would provide further confirmation of the development of such a stage. After that, Gold could deploy a leg back to the floor of the range as it continues to oscillate.

Gold’s medium- and long-term trends remain bullish, however, and if one of these longer-term cycles resumes, it could theoretically push the asset to even higher highs.