Gold hits highest level this week as concerns

5 Eylül 2024

Today’s market analysis on behalf of Samer Hasn, Senior Market Analyst at XS.com

Gold hits highest level this week as concerns over US labor market health deepen

Gold is heading for its highest levels this week at $2,520 per ounce in spot prices after a lackluster performance throughout the week.

Gold’s gains today come as much worse-than-expected ADP’s nonfarm payrolls employment came in below the 100,000 threshold for the first time since September. This provides support to the yellow metal on the one hand, as it gives the Fed more comfort to cut interest rates multiple times this year, and on the other hand, deepens concerns about the health of the US labor market.

The negative labor market figures, particularly the Bureau of Labor Statistics’ July nonfarm payrolls, have awakened long-suppressed fears about the possibility of the US economy being dragged into recession.

This in turn has led to the emergence of a scenario of a half-percentage point cut at the Fed’s meeting in two weeks. While the likelihood of this scenario having receded recently, today, after yesterday’s JOLTS figures, it is now 45% likely, according to CME FedWatch Tool figures. Moreover, the probability that the Fed will end this year’s meetings with a 1.25 percentage point rate cut is 37%.

Although optimism surrounding the rate cut is strong, concerns about the economy’s health could drive investors away from risky assets and towards safer ones like bonds. As a result, bonds are gaining more attention due to their ability to generate yields. However, market expectations are also pointing to a decline in yields given these two factors.

As such, investors may head to bonds and their funds, taking advantage of the yields that we may not see until the next round of rate hikes, and I believe this in turn could slow down gold’s gains.

This narrative could be confirmed with the influx of more US labor market and economic data, especially tomorrow with the non-farm payrolls, unemployment and wage growth data for August.

Zaid Barem / YMM