Data for the week, US NFP, came in above expectations. Markets took this as a sign that there would be no change in the Federal Reserve’s hawkish stance. Thus, the gold price rally was short-lived. Investment expert Gary Wagner analyzes the impact of the employment report on markets and gold prices.
Possibility of Fed’s higher rate hikes increased
The jobs report for September showed that 263,000 new jobs were added last month. However, 315,000 new jobs were added in the previous month. Thus, although above expectations, there was a decline in monthly interests.
The rapid impact on almost every asset class in the financial markets is not due to lukewarm numbers. The real reason is the Federal Reserve’s expectation that these numbers will be even lower. The Fed had hoped Friday’s report would reveal even slower growth. Because that would show the progress the Fed has made in reducing inflation.
Koindeks.com As you follow, the Federal Reserve has increased interest rates at every FOMC meeting since March. However, inflation still stands at 40-year highs. The Fed increased interest rates by 25 bps in March, 50 bps in May, and 75 bps in June, July and September. Thus, the Fed increased the benchmark rate from 0 to 25 basis points in February to 300 to 325 basis points in September. Today’s report shows that employment growth is slowing. However, this contraction is believed not to be enough for the Fed to slow the current rate of rate hikes.
According to CME’s FedWatch tool, there was a 56.5% probability last week for the Federal Reserve to raise 75 basis points for the fourth consecutive time at its November FOMC meeting. However, it increased to 75.2% yesterday and to 82.3% today. This feasibility indicator uses 30-day Fed Funds futures pricing information. Thus, it assumes the possibility of FOMC rate moves.
“In this scenario, gold prices could rise significantly”
Today’s report also had a profound impact on US equities. Following the report, the most active December contract, based on gold futures, fell by $1,698.40. Before the report, it was at the level of $ 1,721.
So, what does this mean for the future of gold prices? This report is invaluable in an extremely valuable set of information that the Fed will use at its November 2 FOMC meeting. However, next week’s September CPI report is much more valuable. But in terms of the Fed’s long-term impact on gold prices, it’s quite possible that market participants will have to focus on high inflation if it continues to raise interest rates and inflation stays flat at one point. If this assumption is correct, it is possible that it could raise gold significantly. But more pain is expected in the future.
Our technical studies show that the first level of resistance is at $1,710, which is the 23.6% Fibonacci retracement based on the very short-term Fibonacci retracement information identified between September 28 and mid-October 7. The major resistance stands at $1,738, the final climax of the rally that started after gold hit $1,621, the lowest value in recent years. The first anchor is at the 38.2% Fibonacci retracement at $1,693.80. Subsequently, $1,689.40 stands at the 42% retracement level.