On Friday (December 9), international gold prices rose slightly on the back of a weaker dollar. But investors are waiting for the release of key U.S. inflation data and the Federal Reserve’s decision to raise interest rates, and gold prices may encounter resistance at the $1,800 mark. The labor market remains tight but strong, which could prevent the Fed from slowing the pace of rate hikes.
At 15:15 Beijing time, spot gold rose 0.38% to $1,795.73 an ounce; the main COMEX gold futures contract rose 0.36% to $1,807.9 an ounce; the U.S. dollar index fell 0.21% to 104.594.
Market participants are now pricing in a 93% chance the Fed will raise rates by 50 basis points at its Dec. 13-14 policy meeting. Investors will also focus on the November U.S. Consumer Price Index (CPI) report, due on Dec. 13.
Clifford Bennett, chief economist at ACY Securities, said that with the CPI data and the Fed meeting coming up, there is a real possibility that gold will rise. If the Fed slows the pace of rate hikes as expected and the CPI data is relatively benign, “then the dollar could weaken and gold will suddenly flat out.”
But a modest increase in U.S. jobless claims last week suggested that the labor market remained tight and strong despite growing fears of a recession. That could prevent the Fed from slowing its pace of rate hikes.
Edward Moya, senior analyst at OANDA, said in a note: “Traders will be watching the Fed’s views on inflation trends and the possibility of a peak in interest rates. Gold prices appear to be hovering around $1,800 until there are further signs.”
While weak household survey data suggested non-farm payrolls may have overstated the strength of U.S. job gains, even modest job gains could be enough to tighten the labor market if supply doesn’t grow at all. Other indicators such as JOLTs job vacancies confirm that labor demand is still on the rise. With wage inflation now well above the 2% inflation target, the Fed has made little progress in bringing markets back into balance.
The U.S. economy remained on a moderate growth trajectory in the fourth quarter, and the Fed needs to force a mild recession next year to avoid a prolonged period of high inflation. Reducing demand would require overall financial conditions to tighten again, which could include more rate hikes in the first quarter, still-rising long-term real yields, and a stronger dollar.