Gold Whipsaws as Uncertainty Looms Over Fed’s Rate-Hike Trajectory

According to the latest data from the US Department of Labor, initial unemployment claims increased by 29,000 to 219,000 in the week ended Oct. 1. This was higher than what was forecasted, although it remained at a historically low level. The dollar continued to strengthen after this data was released, which had a negative impact on bullion since it is priced in the greenback.

Gold prices have been volatile this week, swinging between gains and losses as investors react to conflicting economic data. The precious metal started the week on a strong footing, rising almost 4% in the first two trading sessions. This rally was fuelled by disappointing US data, which raised concerns about the health of the economy and increased the possibility of further interest rate cuts from the Federal Reserve. However, gold prices came under pressure on Wednesday after fresh figures showed that the US economy remains resilient. The next economic data that could affect gold prices will be Friday’s nonfarm payrolls report. This report is closely watched by traders as it provides insights into the strength of the labour market. A strong jobs number could ease concerns about the economy and put downward pressure on gold prices.

Graph of Precious Metals Gold

“Gold appears to be anchored as traders await nonfarm payrolls,” said Ed Moya, senior market analyst at Oanda, adding that “mixed” employment data so far “should mean tomorrow will be a volatile day for gold.”

The US Federal Reserve has continued to reiterate its hawkish stance on interest rates in the face of high inflationary pressures. However, this has failed to quell expectations that the Fed will cut rates in 2023. The inflation outlook has become even murkier after the OPEC+ oil production cartel agreed to the biggest output cut since 2020. This could lead to renewed inflationary pressures globally, as prices for crude oil begin to rise again.

“The Fed’s case has not changed since the cycle began in March 2022, slashing inflation is more important than growth itself,” Tom Price, an analyst at Liberum, wrote in a note. “This stance offsets any price upside from ongoing energy-related inflation shocks.”

Spot gold slipped 0.3% to $1,711.77 an ounce as of 10:12 a.m. in New York. The Bloomberg Dollar Spot Index strengthened 0.5%. Silver fell while palladium gained. Platinum was little changed.

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