International gold prices rebounded slightly on Thursday (March 9), but investors remained cautious ahead of the release of U.S. employment data. If the data strengthens the Fed’s hawkish outlook, gold prices will start a new decline. But amid high borrowing costs, some companies are posting job openings to give the appearance that the company is healthy and growing, when in fact it has already started laying off workers.
At 20:39 Beijing time, spot gold rose 0.22% to $1,817.83 an ounce; the main COMEX gold futures contract rose 0.16% to $1,821.6 an ounce; the U.S. dollar index fell 0.25% to 105.432.
Gold prices closed almost flat on Wednesday (March 8), as Federal Reserve Chairman Powell reiterated the hawkish signal released the previous day at the House Financial Services Committee that interest rates may rise faster and higher, but emphasized that policymakers are still debating, The final decision will depend on key data released ahead of this month’s policy meeting.
Powell again acknowledged that the Fed’s initial view that inflation was a “transitory” factor that would ease on its own turned out to be wrong. He also expressed surprise at how well the labor market has recovered from the coronavirus pandemic.
Asked whether he would pause rate hikes to avoid a recession, Powell replied: “I’m not going to give a ‘yes or no’ answer to that. It’s a serious question. I can’t tell you because I don’t Know all the facts.”
Thierry Wizman, global FX and rates strategist at Macquarie, said: “Powell concedes that the decision in March will depend on the data. So the question we have is whether the re-acceleration in January was a blip or a trend.”
It should be noted that Powell’s hawkish comments suggest that the Fed is ready to raise interest rates further if necessary, and if incoming economic data confirms its view, gold’s latest rally will stall.
Financial conditions have not materially tightened
The U.S. labor market remains very tight and the housing services sector is hyperinflated, all of which are linked factors affecting the outlook for a rate hike by the Federal Reserve. The Fed wants a sharp easing in the labor market to curb inflation in the services sector. Markets are now pricing in a 50 basis point rate hike from the Fed at its March 21-22 policy meeting.
The Fed’s fierce battle with inflation over the past year has raised the cost of home mortgages and other credit. But little progress has been made in the decline in the core inflation measure the Fed watches, and the number of job vacancies per job seeker remains high at 1.9, both well above pre-pandemic standards.
However, financial conditions have indeed not tightened substantially, and long-term market interest rates have not risen significantly.The yield on the 10-year U.S. bond briefly topped 4%, but failed to hold above it. The inversion between the 2-year and 10-year Treasury yields broke through 100 basis points.If a 50 basis point hike really makes sense from a purely macro perspective, it probably should, too.
Independent analyst Ross Norman said,Gold prices rose slightly as people bought on dips, but the outlook for the yellow metal didn’t look very encouraging as expectations of rising long-term interest rates strengthened.
All to be supported by employment data
Economists expect the U.S. non-farm payrolls report for February, due on Friday, to show an increase of 205,000 jobs for the month. The data that have been released show that private jobs in the United States increased by 242,000 in February, and job vacancies in the United States fell less than expected in January, which seems to continue to confirm the hotness of the labor market.
Economists at ING expect markets to remain calm ahead of the release of U.S. jobs data for February. “The U.S. dollar index will continue to be supported by the U.S. non-farm payrolls data. We doubt that the U.S. dollar will move much lower ahead of the March 22 FOMC meeting, and there is indeed an external risk that if U.S. employment and inflation do not move as high as February If it slows down as expected, then the dollar index could rise to 107.80.”
But amid high borrowing costs, some companies are posting job openings to create the illusion that the company is healthy and growing, even as layoffs have already begun. Demand for workers may have slowed as the number of job postings on Indeed declined throughout February, said Nick Bunker, director of North American economic research at Indeed, a large job aggregator.
There are some flaws in the number of job vacancies that are oft cited compared to the number of job applicants. Just because there are lots of job openings doesn’t mean they are compatible with the job needs and requisites of people looking for new opportunities, possibly low-paying and dead-end jobs that people don’t want.
Therefore, the Fed’s interest rate hike expectations in March will still be full of uncertainty. There is no shortage of support for the view that the U.S. labor market is starting to soften. If February nonfarm payrolls fall below 150,000, that could send the Fed rate hike pendulum back to 25 basis points, especially if accompanied by some moderation in wage inflation.
Norman said,Traders will pay close attention to Friday’s non-farm payrolls data to confirm whether the labor market remains strong enough to force the Fed to resume raising interest rates faster, but the weaker-than-expected data will be positive for gold.
Edward Moya, senior market analyst at OANDA, said in a note:“Gold traders are awaiting Friday’s U.S. non-farm payrolls report for February before we witness any possible major positioning adjustments.”
Spot gold is expected to fall below $1,800
On the daily line, the price of gold started a downward c-wave trend from $1,858, and the lower support looked at the 38.2% target of $1,799 and the 61.8% target of $1,762. The price of gold continues the downward (ii) wave that started at $1960, and the c wave is the sub-wave of (ii) wave.