On Friday (November 4), international gold prices rose as the US dollar index fell slightly, easing the pressure from the Fed’s aggressive hawkish policies. Investor focus now shifts to the upcoming US October non-farm payrolls data at 20:30 GMT. While it’s appropriate to expect the dollar to peak, the market likely hasn’t gotten there yet.
At 15:25 Beijing time, spot gold rose 1.10% to US$1,647.23 per ounce; the main COMEX gold futures contract rose 1.14% to US$1,649.5 per ounce; the US dollar index fell 0.36% to 112.581.
“Gold has attempted to restart its downtrend a number of times recently and appears to be showing signs of stabilizing, but it’s safe to say that the bulls are not out of the woods yet,” said Clifford Bennett, chief economist at ACY Securities.
The Federal Reserve raised interest rates by 75 basis points for the fourth time in a row on Wednesday (November 2), with Chairman Jerome Powell pledging to “continue” to fight inflation. Although gold is seen as an inflation hedge, high interest rates have eroded the attractiveness of the non-yielding asset.
Christopher Wong, currency strategist at OCBC Bank, said: “Interest rates are likely to remain high, but a slower pace of rate hikes could slow the pace of gold’s decline. We don’t rule out downside risks, but largely expect gold to bottom out repeatedly and even A mild recovery.”
According to preliminary estimates, the U.S. economy is expected to create a further 200,000 jobs in October, down from 263,000 in September; the unemployment rate is expected to rise by 0.1 percentage points to 3.6%; the annual rate of average hourly earnings is expected to fall by 0.3 percentage points from the previous value to 4.7%. Falling wages could dent household confidence, leading to further declines in consumer spending.
On the employment front, a surprising uptick in data would reinforce the Fed’s aggressive rate hikes and weaken gold prices, Wong said, but if job growth does slow, gold prices could find support.
Economists at HSBC believe the momentum behind the dollar’s bullish trend since mid-2021 (namely rising expectations for peak Fed rates, slowing global growth and risk aversion) is clearly fading. However, it has not yet reached the turning point. So while it’s appropriate to expect the dollar to peak, the market likely isn’t there yet.
The bank expects the Fed to raise interest rates two more times in December 2022 and February 2023, by 50 basis points each, to the peak of the federal funds target range of 4.75-5.00%, noting that peak policy rate expectations still tend to rise rather than falling, as U.S. core inflation is likely to remain elevated for a long time next year. The bank also doesn’t see any rate cuts by the Fed in 2023 or 2024.