Gold advances on subdued US NFP, Services PMI data, geopolitical tensions, neutral Fed bets

Gold price capitalizes on softer-than-anticipated US labor market data.
Job growth was expected to have slowed in October due to the United Auto Workers strike.
Geopolitical tensions, neutral Fed bets, and subdued US NFP report would keep the Gold price outlook upbeat.

Gold price (XAU/USD) delivers a consolidation breakout as the United States Bureau of Labor Statistics (BLS) has reported that job growth slowed in October. The Nonfarm Payrolls (NFP) were lower at 150K than expectations of 180K and the 297K payroll additions in September, which were revised lower. Economists expected slower job growth in October as at least 30K workers of the United Auto Workers (UAW) union went on strike against Detroit's "Big Three" car makers. The Unemployment Rate rose to 3.9%, against expectations and the prior release of 3.8%.

Apart from the headline figure of job growth, the Average Hourly Earnings data that provides guidance on consumer spending and inflation, rose at a slower pace of 0.2% in October against the consensus and the former reading of 0.3% on a monthly basis. The annual Average Hourly Earnings data gained at a higher pace of 4.1% against expectations of 4.0% growth but remained below the former reading of 4.2%. Subdued labor growth and slow wage hikes have eased bets for one more interest rate increase from the Fed.

The near-term demand for Gold has strengthened further due to persisting geopolitical tensions in the Middle East and expectations that the Federal Reserve (Fed) will keep interest rates elevated for a significantly longer period and slow job growth in October.

Daily Digest Market Movers: Gold price comes out of woods on weak US data

Gold price rallied above the psychological resistance of $2,000 after the release of the subdued US NFP report.
The precious metal is expected to extend gains significantly amid multiple tailwinds such as soft labor demand, and deepening Israel-Palestine tensions.
The near-term demand for bullions seems upbeat as investors hope that the Federal Reserve is done hiking interest rates after keeping them unchanged in the range of 5.25%-5.50% on Wednesday for the second time in a row.
However, Fed Chair Jerome Powell kept expectations of more interest rate hikes alive as strong retail demand and upbeat labor market conditions could keep inflationary pressures persistent.
The US Dollar Index (DXY) discovered an intermediate support near 106.00 as investors turned cautious ahead of the labor market data. 10-year US Treasury yields rebound to near 4.67% but remain on the backfoot on expectations that the Fed has concluded its rate-tightening campaign.
As per the CME Fedwatch tool, more than 80% of traders bet that monetary policy will remain unaltered for the rest of the year.
Deepening Middle East tensions keep the appeal for Gold upbeat. The Israeli army has surrounded Gaza and is prepared for the ground assault.
US Secretary of State Antony Blinken has arrived in Israel with the aim of negotiating a temporary pause in the ground invasion plan by Israeli troops to confirm the secure dispatch of humanitarian aid and help with hostage negotiations.
Meanwhile, the US Institute for Supply Management (ISM) Services PMI for October has dropped more than expected.
Services PMI, which gauges activity in the US service sector – a sector that accounts for two-thirds of the US economy – declined to 51.8 against expectations of 53.0 and 53.6 reading from September. On the contrary, New Orders for the service industry rose significantly to 55.5 against the former release of 51.8.

Technical Analysis: Gold price aims to stabilize above $2,000

Gold price attempts to break the consolidation in the range of $1,975-1,990 to the psychological resistance of $2,000.00 after the release of the US labor market data. A volatile action in Gold was highly anticipated after the release of the US labor market data.

On a broader note, the trend for Gold is bullish as the 20-day and 50-day Exponential Moving Averages (EMAs) are sloping higher. Momentum indicators also oscillate in the bullish range, indicating strength in the upside momentum.

Employment FAQs

How do employment levels affect currencies?

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

Why is wage growth important?

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

How much do central banks care about employment?

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.

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